fbp2023123110k

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K

(Mark one)

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE

ACT

OF 1934

For the Fiscal Year Ended

December 31, 2023

[ ]

TRANSITION REPORT PURSUANT TO SECTION

13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF

1934

For the transition period from ___________________ to ___________________

COMMISSION FILE NUMBER

001-14793

FIRST BANCORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED

IN ITS CHARTER)

Puerto Rico

66-0561882

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1519 Ponce de León Avenue, Stop 23

00908

San Juan

Puerto Rico

(Zip Code)

(Address of principal executive office)

Registrant’s telephone number, including area code:

(

787

)

729-8200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.10 par value)

FBP

New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned

issuer, as defined in Rule 405 of the Securities

Act.

Yes

☑

☐

Indicate by check mark if the registrant is not required to file reports

pursuant to Section 13 or 15(d) of the Act. Yes

☐

☑

Indicate by check mark whether the registrant (1) has filed all

reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for

such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the

past 90 days.

Yes

☑

☐

Indicate by check mark whether the registrant has submitted

electronically every Interactive Data File required to be submitted

pursuant to Rule 405 of Regulation S-T (§232.405 of this

chapter) during the preceding 12 months (or for such shorter period

that the registrant was required to submit such files).

Yes

☑

☐

Indicate by check mark whether the registrant is a large

accelerated filer, an accelerated filer,

a non-accelerated filer, a smaller reporting company,

or an emerging growth company.

See the

definitions of “large accelerated filer,” “accelerated

filer,” “smaller reporting company,”

and “emerging growth company” in Rule 12b-2 of the Exchange

Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company,

indicate by check mark if the registrant has elected not to use

the extended transition period for complying with any new or revised financial

accounting

standards provided pursuant to Section 13 (a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a

report on and attestation to its management’s

assessment of the effectiveness of its internal control

over financial reporting under

Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the

registered public accounting firm that prepared or issued its

audit report.

☑

If securities are registered pursuant to Section 12(b) of the Act,

indicate by check mark whether the financial statements of

the registrant included in the filing reflect the correction of

an error

to previously issued financial statements.

☐

Indicate by check mark whether any of those error corrections are

restatements that required a recovery analysis of incentive-based

compensation received by any of the registrant’s

executive

officers during the relevant recovery period pursuant

to §240.10D-1(b).

☐

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☑

The aggregate market value of the voting common equity held

by non-affiliates of the registrant as of June 30,

2023 (the last trading day of the registrant’s

most recently completed second

fiscal quarter) was $

2,096,201,179

based on the closing price of $12.22 per share of the registrant’s

common stock on the New York

Stock Exchange on June 30, 2023. The registrant had no

nonvoting common equity outstanding as of June 30, 2023.

For the purposes of the foregoing calculation only,

the registrant has defined affiliates to include (a) the executive

officers named in

Part III of this Annual Report on Form 10-K; (b) all directors

of the registrant; and (c) each shareholder,

including the registrant’s employee benefit

plans but excluding shareholders that file on

Schedule 13G, known to the registrant to be the beneficial owner

of 5% or more of the outstanding shares of common stock of the

registrant as of June 30, 2023. The registrant’s

response to

this item is not intended to be an admission that any person

is an affiliate of the registrant for any purposes other than this

response.

Indicate the number of shares outstanding of each of the

registrant’s classes of common stock,

as of the latest practicable date:

167,317,829

shares as of February 21, 2024.

Documents incorporated by reference:

Portions of the definitive proxy statement relating to

the registrant’s annual meeting of stockholders

scheduled to be held on May 23, 2024 are

incorporated by reference in response to Items 10, 11,

12, 13 and 14 of Part III of this Form 10-K.

FIRST BANCORP.

2023 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 1C.

Cybersecurity

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

Item 6.

[Reserved]

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

114

Item 8.

Financial Statements and Supplementary Data

115

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

235

Item 9A.

Controls and Procedures

235

Item 9B.

Other Information

235

Item 9C.

Disclosure regarding Foreign Jurisdictions that Prevent Inspections

235

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance

236

Item 11.

Executive Compensation

236

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

236

Item 13.

Certain Relationships and Related Transactions, and Director Independence

236

Item 14.

Principal Accountant Fees and Services

237

PART

Item 15.

Exhibits and Financial Statement Schedules

237

Item 16.

Form 10-K Summary

237

Exhibit Index

SIGNATURES

Forward-Looking Statements

This Annual

Report on

Form 10-K

(this “Form 10-K”)

contains forward-looking

statements within

the meaning

of Section

27A of

the Securities

Act of

1933, as

amended (the

“Securities Act”),

and Section

21E of

the Securities

Exchange Act

of 1934,

as amended

(the “Exchange Act”),

which are subject to

the safe harbor created

by such sections. When

used in this Form

10-K or future

filings by

First

BanCorp.

(the

“Corporation,”

“we,”

“us,”

“our”)

with

the

U.S.

Securities

and

Exchange

Commission

(the

“SEC”),

the

Corporation’s press

releases or in other public or

stockholder communications made by

the Corporation, or in oral statements

made on

behalf

the

Corporation

by,

with

the

approval

of,

authorized

executive

officer

the

Corporation,

the

words

phrases

“would,”

“intends,”

“will,”

“expect,”

“should,”

“plans,”

“forecast,”

“anticipate,”

“look

forward,”

“believes,”

and

other

terms

similar meaning or import, or the

negatives of these terms or variations

of them, in connection with any discussion

of future operating,

financial or other performance are meant to identify “forward-looking

statements.”

The Corporation cautions readers

not to place undue reliance on

any such “forward-looking statements,” which

speak only as of the

date made

or,

with respect

to such

forward-looking statements

contained in

this Form

10-K, the

date hereof,

and advises readers

that

any such

forward-looking statements

are not

guarantees of

future performance

and involve

certain risks,

uncertainties, estimates,

and

assumptions

by us

that are

difficult

to predict

Various

factors, some

of which

are beyond

our

control,

could cause

actual results

differ materially from those expressed in, or implied by,

such forward-looking statements.

Factors

that

could

cause

results

differ

materially

from

those

expressed

in,

implied

by,

the

Corporation’s

forward-looking

statements include, but are not limited to, risks described or referenced

in Part I, Item 1A, “Risk Factors,” and the following:

●

the effect

of the

current interest

rate environment

or changes

in interest

rates on

the level,

composition

and performance

the

Corporation’s

assets

and

liabilities,

and

corresponding

effects

the

Corporation’s

net

interest

income,

net

interest

margin, loan originations, deposit attrition, overall results of operations,

and liquidity position;

●

the effect of

changes in the interest

rate environment, including

any adverse change

in the Corporation’s

ability to attract

and

retain

clients

and

gain

acceptance

from

current

and

prospective

customers

for

new

products

and

services,

including

those

related to the offering of digital banking and financial services;

●

volatility in the

financial services industry,

including failures or

rumored failures of

other depository institutions,

and actions

taken

governmental

agencies

stabilize

the

financial

system,

which

could

result

in,

among

other

things,

bank

deposit

runoffs, liquidity constraints, and increased regulatory

requirements and costs;

●

the

effect

continued

changes

the

fiscal

and

monetary

policies

and

regulations

the

United

States

(“U.S.”)

federal

government,

the Puerto

Rico government

and other governments,

including those

determined by

the Board

of the Governors

the

Federal

Reserve

System

(the

“Federal

Reserve

Board”),

the

Federal

Reserve

Bank

New

York

(the

“FED”),

the

Federal Deposit Insurance

Corporation (the “FDIC”),

government-sponsored housing agencies

and regulators in

Puerto Rico,

the U.S.,

and the

U.S. Virgin

Islands (the

“USVI”) and

British Virgin

Islands (the

“BVI”), that

may affect

the future

results

of the Corporation;

●

uncertainty as

to the

ability of

the Corporation’s

banking subsidiary,

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), to

retain its core

deposits and

generate sufficient

cash flow through

its wholesale funding

sources, such as

securities sold under

agreements

repurchase,

Federal

Home

Loan

Bank

(“FHLB”)

advances,

and

brokered

certificates

deposit

(“brokered

CDs”), which may require us to sell investment securities at a loss;

●

adverse changes in general

economic conditions in Puerto Rico,

the U.S., and the USVI and

the BVI, including in the

interest

rate

environment,

unemployment

rates,

market

liquidity,

housing

absorption

rates,

real

estate

markets,

and

U.S.

capital

markets,

which

may

affect

funding

sources,

loan

portfolio

performance

and

credit

quality,

market

prices

investment

securities,

and

demand

for

the Corporation’s

products

and services,

and which

may

reduce

the

Corporation’s

revenues and

earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

in Puerto

Rico, and the timing and pace of disbursements of funds earmarked for disaster

relief;

●

the ability

of the

Corporation, FirstBank,

and third-party

service providers

on which

we rely

to identify

and prevent

cyber-

security incidents, such as data security breaches,

ransomware, malware, “denial of service” attacks,

“hacking,” identity theft,

and state-sponsored

cyberthreats, and

the occurrence

of and

response to

any such

cybersecurity incidents

that occur,

such as

April

2023

security

incident

one

our

third-party

vendors,

which

may

result

misuse

misappropriation

confidential

proprietary

information,

disruption,

damage

our

systems

those

third-party

service

providers

which we rely, increased

costs and losses and/or adverse effects

to our reputation;

●

general competitive

factors and other

market risks as

well as the

implementation of

strategic growth opportunities,

including

risks, uncertainties, and other factors or events related to any business acquisitions

or dispositions;

●

uncertainty as

to the

implementation of

the debt

restructuring plan

of Puerto

Rico (“Plan

of Adjustment”

or “PoA”)

and the

fiscal plan

for Puerto

Rico as

certified

on April

3, 2023

(the “2023

Fiscal Plan”)

by the

oversight

board established

by the

Puerto Rico

Oversight, Management,

and Economic

Stability Act

(“PROMESA”),

or any

revisions to

it, on

our clients

and

loan portfolios, and any potential impact from future economic or political

developments and tax regulations in Puerto Rico;

●

the

impact

changes

accounting

standards,

assumptions

applying

those

standards,

and

forecasts

economic

variables considered for the determination of the allowance for credit

losses (“ACL”);

●

the ability of FirstBank to realize the benefits of its net deferred tax assets;

●

the ability of FirstBank to generate sufficient cash flow to make dividends

to the Corporation;

●

environmental, social and governance (“ESG”) matters, including our

climate-related initiatives and commitments;

●

the impacts

of natural

or man-made

disasters, the

emergence or

continuation of

widespread health

emergencies, geopolitical

conflicts (including

sanctions, war or

armed conflict, such

as the ongoing

conflict in Ukraine,

the conflict between

Israel and

Hamas, and

the possible

expansion of

such conflicts

in surrounding

areas and

potential geopolitical

consequences),

terrorist

attacks,

other

catastrophic external

events,

including

impacts of

such

events on

general economic

conditions

and

on the

Corporation’s assumptions regarding

forecasts of economic variables;

●

the

risk

that

additional

portions

the

unrealized

losses in

the

Corporation’s

debt

securities portfolio

are

determined

credit-related, resulting

in additional

charges to

the provision

for credit

losses on

the Corporation’s

debt securities

portfolio,

and

the

potential

for

additional

credit

losses

that

could

emerge

from

the

downgrade

the

U.S.’s

Long-Term

Foreign-

Currency Issuer Default Rating to ‘AA+’ from ‘AAA’

in August 2023 and subsequent negative ratings outlooks;

●

the impacts of applicable

legislative, tax, or regulatory

changes, as well as of

the 2024 U.S. and

Puerto Rico general election,

on the Corporation’s financial condition

or performance;

●

the

risk

possible

failure

circumvention

the

Corporation’s

internal

controls

and

procedures

and

the

risk

that

the

Corporation’s risk management

policies may not be adequate;

●

the risk that the FDIC may

further increase the deposit insurance

premium and/or require further special assessments,

causing

an additional increase in the Corporation’s

non-interest expenses;

●

any need to recognize impairments on the Corporation’s

financial instruments, goodwill, and other intangible assets;

●

the risk

that the

impact

of the

occurrence

of any

of these

uncertainties on

the Corporation’s

capital would

preclude

further

growth of FirstBank and preclude the Corporation’s

Board of Directors (the “Board”) from declaring dividends; and

●

uncertainty as

to whether

FirstBank will

be able

to continue

to satisfy

its regulators

regarding,

among other

things, its

asset

quality,

liquidity

plans,

maintenance

capital

levels,

and

compliance

with

applicable

laws,

regulations

and

requirements.

The

Corporation

does

not

undertake

to,

and

specifically

disclaims

any

obligation

update

any

“forward-looking

statements”

reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities laws.

PART

Item 1.

Business

GENERAL

First

BanCorp.

publicly

owned

financial

holding

company

that

subject

regulation,

supervision

and

examination

the

Federal Reserve Board. The Corporation was incorporated under

the laws of the Commonwealth of Puerto Rico in 1948 to serve as the

bank holding company

for FirstBank. Through

its subsidiaries, including

FirstBank, the Corporation

provides full-service commercial

and

consumer

banking

services,

mortgage

banking

services,

automobile

financing,

insurance

agency

services,

and

other

financial

products and

services in

Puerto Rico,

the U.S.,

the USVI

and the

BVI. As

of December

31, 2023,

the Corporation

had total assets

$18.9 billion, including loans of $12.2 billion, total deposits of $16.6

billion, and total stockholders’ equity of $1.5 billion.

The

Corporation

has

two

wholly-owned

subsidiaries:

FirstBank

and

FirstBank

Insurance

Agency,

Inc.

(“FirstBank

Insurance

Agency”).

FirstBank

Puerto

Rico-chartered

commercial

bank,

and

FirstBank

Insurance

Agency

Puerto

Rico-chartered

insurance agency.

FirstBank is subject to

the supervision, examination

and regulation of both

the Office of the

Commissioner of Financial Institutions

Puerto

Rico

(“OCIF”)

and

the

FDIC.

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund

(the

“DIF”).

addition,

within FirstBank, the

Bank’s USVI

operations are

subject to regulation

and examination by

the USVI Division

of Banking Insurance,

and Financial

Regulation;

its BVI

operations are

subject to

regulation by

the BVI

Financial Services

Commission; and

its operations

the

state

Florida

are

subject

regulation

and

examination

the

Florida

Office

Financial

Regulation.

The

Consumer

Financial Protection

Bureau (“CFPB”)

regulates FirstBank’s

consumer financial

products and

services.

FirstBank Insurance

Agency

is subject to the supervision, examination

and regulation of the Office of

the Insurance Commissioner of the

Commonwealth of Puerto

Rico (the “Insurance Commissioner of Puerto Rico”) and the Division of

Banking, Insurance and Financial Regulation in the USVI.

FirstBank conducts its

business through its main

office located in

San Juan, Puerto Rico,

58 banking branches

in Puerto Rico, eight

banking

branches

the

USVI

and

the

BVI,

and

eight

banking

branches

the

state

Florida.

FirstBank

has

six

wholly-owned

subsidiaries

with

operations

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

finance

company

specializing

the

origination

small

loans

with

offices

Puerto

Rico;

First

Management

Puerto

Rico,

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

international

banking

entity

(an

“IBE”)

organized

under

the

International

Banking

Entity

Act

Puerto

Rico;

two

companies

engaged

the

operation

certain

real

estate

owned

(“OREO”)

properties

and

limited

liability

corporation

organized

2022

under

the

laws

the

Commonwealth

Puerto

Rico

and

Puerto

Rico

Tax

Incentive

Code

(“Act

2019”),

which

commenced

operations

2023

and

engages

qualified

investing

and

lending transactions.

For a

discussion of

certain significant

events that

have occurred

in the

year ended

December 31,

2023, please

refer to

“Significant

Events” included in Part II, Item

7, “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations” of this

Form 10-K.

BUSINESS SEGMENTS

The Corporation has six reportable segments: Commercial and Corporate

Banking; Mortgage Banking; Consumer (Retail) Banking;

Treasury and Investments; United States

Operations; and Virgin

Islands Operations. These segments are described below,

as well as in

Note 27 – “Segment Information” to the audited consolidated financial

statements included in Part II, Item 8 of this Form 10-K.

Commercial and Corporate Banking

The

Commercial

and

Corporate

Banking

segment

consists

the

Corporation’s

lending

and

other

services

for

large

customers

represented

specialized

and

middle-market

clients

and

the

government

sector

the

Puerto

Rico

region.

The

Commercial

and

Corporate

Banking

segment

offers

commercial

loans,

including

commercial

real

estate

and

construction

loans,

well

other

products,

such

cash

management

and

business

management

services.

substantial

portion

the

commercial

and

corporate

banking portfolio is secured by the underlying real estate collateral and the personal

guarantees of the borrowers.

Mortgage Banking

The Mortgage Banking segment consists of the origination, sale and

servicing of a variety of residential mortgage loan products

and

related hedging

activities in

the Puerto

Rico region.

Originations are

sourced through

different channels,

such as

FirstBank branches

and

purchases

from

mortgage bankers,

and

association

with

new

project

developers.

The

Mortgage

Banking

segment

focuses

originating

residential

real

estate

loans,

some

which

conform

the

U.S.

Federal

Housing

Administration

(the

“FHA”),

the

U.S.

Veterans

Administration

(the

“VA”)

and

the

U.S.

Department

Agriculture

Rural

Development

(the

“RD”)

standards.

Originated

loans that meet

the FHA’s

standards qualify for

the FHA’s

insurance program whereas

loans that meet

the standards of

the VA

or the

RD are guaranteed by those respective federal agencies.

Mortgage loans that

do not qualify under

the FHA, the

or the RD programs

are referred to as

conventional loans. Conventional

real estate

loans can

be conforming

or non-conforming.

Conforming loans

are residential

real estate

loans that

meet the

standards for

sale

under

the

U.S.

Federal

National

Mortgage

Association

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”) programs.

Loans that

do not

meet FNMA

or FHLMC

standards are

referred to

as non-conforming

residential real

estate

loans. The Mortgage

Banking segment also acquires

and sells mortgages

in the secondary

markets. Residential real

estate conforming

loans are

sold to

investors like

FNMA and

FHLMC. Most

of the

Corporation’s

residential mortgage

loan portfolio

consists of

fixed-

rate, fully

amortizing, full

documentation loans.

The Corporation

has commitment

authority to

issue Government

National Mortgage

Association

(“GNMA”)

mortgage-backed

securities

(“MBS”).

Under

this

program,

the

Corporation

has

been

selling

FHA/VA

mortgage loans into the secondary market since 2009.

Consumer (Retail) Banking

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities

conducted

mainly

through FirstBank’s

branch network

ATMs

and online

banking

in the

Puerto

Rico region.

Loans

to consumers

include

auto

loans, finance leases, boat and personal loans, credit card

loans, and lines of credit.

Deposit products include interest-bearing and non-

interest-bearing

checking

and

savings

accounts,

Individual

Retirement

Accounts

(“IRAs”)

and

retail

certificates

deposit

(“retail

CDs”). Retail

deposits gathered

through each

branch of

FirstBank’s

retail network

serve as one

of the

funding sources

for its

lending

and investment

activities. This

segment also

includes the

Corporation’s

insurance agency

activities in

the Puerto

Rico region

through

FirstBank Insurance Agency.

Treasury and Investments

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

treasury

and

investment

management

functions.

The

treasury

function,

which

includes

funding

and

liquidity

management,

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking

and

the

United

States

Operations

segments

finance

their

respective

lending

activities and

borrows from

those segments.

The Treasury

and Investments

segment also

obtains funding

through brokered

deposits,

advances from the FHLB, and repurchase agreements involving investment

securities, among other possible funding sources.

United States Operations

The United

States Operations

segment

consists of

all banking

activities conducted

by FirstBank

on the

U.S. mainland.

FirstBank

provides a

wide range of

banking services

to individual

and corporate customers,

primarily in southern

Florida through

eight banking

branches.

The

United

States

Operations

segment

offers

array

both

consumer

and

commercial

banking

products

and

services.

Consumer banking

products include

checking, savings

and money

market accounts,

retail CDs,

internet banking

services, residential

mortgages,

home

equity

loans,

and

lines

credit.

Retail

deposits,

well

FHLB

advances

and

brokered

CDs

assigned

this

segment, serve as funding sources for its lending activities.

Commercial

banking

services

include

checking,

savings

and

money

market

accounts,

retail

CDs,

internet

banking

services,

cash

management

services,

remote

deposit

capture,

and

automated

clearing

house

(“ACH”)

transactions.

Loan

products

include

the

traditional commercial and industrial

(“C&I”) and commercial real

estate products, such as lines

of credit, term loans

and construction

loans.

Virgin Islands Operations

The Virgin

Islands Operations segment

consists of all

banking activities

conducted by

FirstBank in the

USVI and the

BVI regions,

including

consumer

and

commercial

banking

services, with

a total

of eight

banking

branches serving

the islands

of St.

Thomas,

St.

Croix,

and

St.

John

the

USVI,

and

the

island

Tortola

the

BVI.

The

Virgin

Islands

Operations

segment

driven

its

consumer, commercial lending and deposit

-taking activities.

Loans

consumers

include

auto

loans,

lines

credit,

and

personal

and

residential

mortgage

loans.

Deposit

products

include

interest-bearing and non-interest-bearing

checking and savings

accounts, IRAs, and

retail CDs.

Retail deposits gathered

through each

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

CORPORATE SUSTAINABILITY

PROGRAM OVERVIEW

The

Corporation

committed

supporting

our

clients,

employees,

shareholders

and

communities

which

serve.

Our

Corporate Sustainability program,

which includes environmental,

social and governance

(“ESG”) matters, builds

on the Corporation’s

core

values,

including

being

socially

responsible

company.

The

Corporation

sees

effective

ESG

management

critical

step

towards a sustainable, inclusive and successful future.

During

2021,

the

Corporation

adopted

ESG

framework

through

which

established

and

communicated

its

corporate

sustainability

strategy

and

overarching

governance

policy.

2023,

the

Corporation

continued

evolving

its Corporate

Sustainability

program,

including

the

publication

its

annual

First

BanCorp.

Corporate

Sustainability

Report

for

2022

(the

“2022

Report”).

The

2022

Report

disclosed

information

wide

range

ESG

topics,

including

governance

and

oversight;

business

ethics

and

compliance;

responsible

marketing

and

sales

practices;

ESG

integration

credit

analysis;

data

security

and

cyber

management;

people and culture; community impact; and environmental stewardship.

ESG Governance

The Corporation’s

Board of Directors and

executive leadership team

share responsibilities relating

to oversight of our

ESG policies

and practices. In

February 2022, the

Corporate Governance and

Nominating Committee of

the Board of

Directors amended its charter

include

oversight

responsibility

ESG

matters,

and

has

primary

oversight

ESG

policies,

practices

and

disclosures.

Nonetheless, other committees

of the Corporation’s

Board of Directors

also play a role

in ESG oversight in

matters related to

risk and

cybersecurity management, human capital management, investment management

and credit risk management.

part

the

ESG

governance

structure

set

forth

FirstBanCorp.’s

Sustainability

Policy,

which

was

approved

the

Corporation’s

Board of

Directors in 2022,

the responsibility of

day-to-day management

of our ESG

framework and

strategy has been

delegated

to a

management-level

ESG Committee,

comprised

of leaders

from different

areas, such

as Human

Resources,

Enterprise

Risk

Management,

Strategic

Planning

and

Investor

Relations,

Legal

and

Corporate

Affairs,

Marketing,

Compliance,

Finance,

and

Corporate

Internal

Audit.

The ESG

Committee

tasked

with

aligning

priorities

and

initiatives

for

the

year,

setting

and

monitoring

long-term

objectives

and goals,

and

leading the

annual reporting

process on

ESG related

topics. The

ESG Committee

reports

to the

Corporate Governance and Nominating Committee of the Board of

Directors.

HUMAN CAPITAL MANAGEMENT

First BanCorp.

strives to be

recognized as

a leading

and diversified financial

institution, offering

superior experience

to our clients

and employees. We

believe that the key to our success is caring about our team as much

as we care about our customers. Our goal is to

be an

employer of

choice

within our

primary operating

regions, which

we believe

is achieved

and sustained

by adding

value

to our

employees’

lives

and

providing

satisfying

and

evolving

work

experience.

The

core

our

employer

value

proposition,

“The

Experience of Being 1,” is our commitment to our employees’ well-being,

success, professional development, and work environment.

Employees

As of

December 31,

2023, the

Corporation and

its subsidiaries

had 3,168

regular employees

representing a

1% increase

in overall

headcount from

December 31,

2022. The

Corporation had

2,797 employees

in the

Puerto Rico

region, 209

employees in

the Florida

region,

and

162

employees

the

Virgin

Islands

region.

December

31,

2023,

approximately

67%

the

total

employee

population and 57% of management positions were women.

Oversight

Our

Human

Resources

Division

reports

directly

the

Corporation’s

Chief

Risk

Officer

and

manages

all

elements

the

Corporation’s

human

capital

programs

and

strategies,

including

talent

management,

talent

acquisition,

engagement,

learning

and

development, compensation and benefits.

The Human

Resources Division’s

efforts are

also overseen

by the

Corporation’s

Chief Executive

Officer (CEO)

and the

executive

management

team

through

regular

work-related

interactions.

Our

leaders

focus

strengthening

employee

management

and

engagement

and

maximizing

collaboration

between

departments

and

talents

promoting

open-door

culture

that

stimulates

frequent communication

between employees

and management.

This provides

more opportunities

to identify

employees' needs,

obtain

feedback

about

their

work-life

experience,

and

act

upon

such

feedback

improve

employee

engagement.

addition,

the

Corporation’s

Board

Directors

and

its

Compensation

and

Benefits

Committee

monitor

and

are

regularly

updated

the

Corporation’s human capital management

strategies.

Talent

Management

First BanCorp.

is an equal opportunity

employer which considers qualified candidates

for employment to fill its

open positions. We

focus

our

efforts

on attracting

and

retaining

the

best

talent for

the Corporation,

including

college

graduates,

and promoting

internal

mobility. The

attraction and selection process includes:

●

Promoting and posting our vacant positions

internally and externally;

●

Building our employer brand by participating in professional events and

job fairs and maintaining

relationships

with

universities through internship programs and career forums;

●

Collaboration with hiring managers to ensure an accurate match between

roles and candidates to accelerate the recruitment

process and secure top candidates;

●

A robust management information system to enhance the effectiveness

of the recruitment process and provide candidates with

a unique experience;

and

●

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

’

induction process, including assignment of a “FirstPal”

from day one to help with the organizational culture

transition and learning process.

believe

that financial

security

is critical

for

our employees.

Our goal

is to

maintain

compensation

levels that

are competitive

with the

market

and comparable

job categories

in similar

organizations.

Our salary

administration

program

is designed

to provide

compensation

structure

that

consistent

with

our

employees’

level

responsibilities

attract

the

best

talent

for

each

job

and

commensurately pay for performance.

In addition

to base

salaries, some

job positions

are eligible

to participate

in variable

pay programs.

The Corporation

has incentive

programs

for

revenue

generation

and

sales

support

business

units.

The

incentive

programs

are

reviewed

annually

align

them

business

strategies

and

ensure

sound

risk

management.

Further,

the

Corporation’s

Management

Award

Program

recognizes

and

rewards

outstanding performance

for exempt

employees who

do not

participate in

other variable

pay programs.

The Corporation

also

has a

long-term

incentive plan

for top-performing

leaders and

employees with

high potential.

These programs

provide awards

based

upon

the

Corporation’s

and

individual’s

performance

and

are

key

for

the

attraction

and

engagement

the

best

talent.

The

Corporation’s

investment in its

employees has resulted

in a stable-tenured

workforce, with an

average tenure of

10 years of service

of December 31, 2023, and

a voluntary turnover rate of 10.97%,

mostly related to hourly employees

in call centers, collections centers

and branches. The Corporation measures turnover among high performers

;

such employees’ turnover rate was 2.8% for 2023.

Talent Development

and Engagement

believe

that a

culture of

learning and

development

maximizes the

talent of

human

capital and

is the

foundation for

sustained

business success. Our commitment to employee engagement continues

throughout employees’ time with the Corporation.

Our

learning

and

development

program

strives

reflect

both

employees’

and

the

organization’s

needs.

The

Corporation

offers

than

8,000

training

opportunities

through

online

courses

and

in-person

virtual

classes,

well

development

activities,

special

projects,

and

partial

tuition

reimbursement

complete

bachelor’s

master's

degree

eligible

employees.

Training

offered on

various subjects within

five areas: fundamentals,

compliance and corporate

governance, specialized technical

subjects, soft

skills-professional development, and leadership skills.

In 2023

we provided

over 92 training

topics through

virtual and

in-person modalities

allowing our

employees to

continue learning

and complete development

plans. In 2023,

we delivered more

than 98,000 hours

of training and

each employee completed

an average

of 31 training hours.

Every

year

around

100

new

and

existing

supervisors

and

managers

receive

training

specialized

supervision

and

talent

management.

In addition, our leadership curriculum also

has a program to strengthen skills of

supervisors that includes several days of

training

and

encourages

managers

review

their

leadership

skills after

feedback

received

co-workers.

For

new

supervisors,

offer

program

intended

train

basic

supervision,

leadership

and

communication

skills,

and

our

human

resources

policies

and

practices.

addition,

our

program

for

active

supervisors

and

managers

encourages

leaders

review

their

leadership

skills

with

feedback

received from

instructors and

co-workers.

The program

has been

delivered

to 61%

of our

current leaders

since its

launch,

accounting for over 22,000 training hours.

In addition to these training opportunities, we have processes

to promote professional development and career

growth, including the

promotion of internal

career opportunities, performance

management processes, annual

talent review,

and robust succession

planning.

also

encourage

employees

participate

our

commitment

our

communities

through

our

volunteer

and

community

reinvestment programs.

In 2023, our

employees supported 32

organizations with

more than 2,154

hours of volunteer

work. The Bank

also

encourages

its

employees

serve

non-profit

organizations’

boards

directors.

2023,

First

BanCorp

employees

were

members

the

board

directors

for

non-profit

organizations

across

the

Puerto

Rico,

Florida,

and

Virgin

Islands

regions

and

offered approximately 2,276 hours of service.

Health & Wellness

Health

and

well-being

programs

are

strong

component

the

benefits

provide

our

employees.

First

BanCorp.

provides

competitive benefits

programs to

address even

the most

pressing needs

of our

employees and

their families

to promote

occupational,

physical,

emotional,

and financial

health.

Our

comprehensive

wellness

package

includes

health,

dental

and

vision insurance

offered

through

different

insurance company

options that

enable employees

to choose

those that

best accommodate

their and

their families’

needs. We

also offer life

insurance and disability

plans,

as well as

a defined contribution

retirement plan option

where both employee

and employer contribute.

In addition, the Corporation

offers a fitness facility

in its main offices

which allows employees to

participate

in fitness activities including instructor-led wellness sessions.

promote

work-life

balance,

grant

variety

of paid

time off

for

vacation,

sick,

maternity

and

paternity

leave,

bereavement

leave, marriage and personal days,

in-house health services, and a complete

wellness program, including nutrition, fitness,

health fairs,

personal

finance

education,

and

preventive

healthcare

activities,

nursing

services,

among

others.

The

Corporation

subsidizes

substantial

portion

the

cost

these

benefits.

Also,

flexible

work

arrangements

were

implemented

across

the

organization,

including

hybrid

work

for

the

Florida

region

and

certain

groups

Puerto

Rico,

such

Internal

Audit

and

Enterprise

Risk

Management.

Flexible

programs

are

constantly

under

review

for

expansion

and

amendment

according

business

demands

and

employees’ needs.

MARKET AREA AND COMPETITION

The

Corporation

operates

highly

competitive

markets

and

subject

significant

business,

economic

and

competitive

uncertainties

and contingencies.

In particular,

the banking

market

is highly

competitive in

Puerto Rico,

the main

geographic

service

area of

the Corporation.

As of December

31, 2023,

the Corporation

also had presence

in the state

of Florida

and in the

USVI and

the

BVI.

Puerto

Rico

banks

are

subject

the

same

federal

laws,

regulations

and

supervision

that

apply

similar

institutions

the

United States mainland.

Competitors include

other banks,

insurance companies,

mortgage banking

companies, small

loan companies,

automobile financing

companies,

leasing companies,

brokerage firms

with retail

operations,

credit unions

and certain

retailers that

operate in

Puerto

Rico,

the

USVI,

the

BVI,

and

the

state

Florida,

as well

financial

technology

(“fintech”)

companies

and

emerging

competition

from

digital

platforms.

The

Corporation’s

businesses

compete

with

these

other

firms

with

respect

the

range

products

and

services

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

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

SUPERVISION AND REGULATION

The

Corporation

and

FirstBank,

its

bank

subsidiary,

are

subject

comprehensive

federal

and

Puerto

Rican

supervision

and

regulation.

These

supervisory

and

regulatory

requirements

apply

all

aspects

the

Corporation’s

and

the

Bank’s

activities,

including commercial

and consumer

lending, deposit

taking, management,

governance and

other activities.

As part

of this

regulatory

framework, the

Corporation and

the Bank

are subject

to extensive

consumer financial

regulatory legal

and supervisory

requirements.

Further,

U.S.

financial

supervision

and

regulation

dynamic

nature,

and

supervisory

and

regulatory

requirements

are

subject

change

new

legislative

and

regulatory

actions

are

taken.

See

Part

Item

“Business–General”

above

for

additional

regulatory

oversight

and

supervision

FirstBank

Insurance

Agency.

Future

legislation

may

increase

the

regulation

and

oversight

the

Corporation and the

Bank. Any change in

applicable laws or regulations,

however, may

have a material adverse

effect on the business

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

Corporation.

The Corporation

is also

subject to

the disclosure

and

regulatory requirements

of the

Securities Act

of 1933,

as amended,

and

the

Securities

Exchange

Act

1934,

as amended,

both

as administered

the

SEC, as

well

as the

rules

applicable

companies

with

securities listed on the New York

Stock Exchange.

The following discussion summarizes

certain laws, regulations and policies

to which the Company is subject.

It does not address all

applicable laws, regulations

and policies that affect

the Company currently

or might affect

it in the future.

This discussion is

qualified

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

Bank Holding Company Activities and Other Limitations

The Corporation is registered under

the Bank Holding Company Act

of 1956, as amended (the

“Bank Holding Company Act”),

and

is subject to

ongoing supervision,

regulation and

examination by the

Federal Reserve Board.

The Corporation

is required to

file with

the Federal

Reserve Board

periodic and

annual reports

and other

information concerning

its own

business operations

and those

of its

subsidiaries.

The Bank Holding

Company Act also permits

a bank holding company

to elect to become

a financial holding

company and engage

broader

range

financial

activities.

The

Corporation

has

elected

financial

holding

company

under

the

Bank

Holding

Company Act.

Financial holding

companies may

engage, directly or

indirectly,

in any activity

that is determined

to be (i)

financial in

nature, (ii) incidental to

such financial activity,

or (iii) complementary to

a financial activity and does

not pose a substantial risk

to the

safety

and

soundness

depository

institutions

the

financial

system

generally.

The

Bank

Holding

Company

Act

specifically

provides that

the following

activities have

been determined

to be

“financial in

nature”: (i)

lending, trust

and other

banking activities;

(ii) insurance activities; (iii) financial

or economic advice or services; (iv)

pooled investments; (v) securities underwriting

and dealing;

(vi) domestic activities

permitted for an

existing bank holding

company; (vii) foreign

activities permitted for

an existing bank

holding

company; and (viii) merchant banking activities.

financial

holding

company

that

ceases

meet

certain

standards

subject

variety

restrictions,

depending

the

circumstances,

including

precluding

the

undertaking

new

financial

activities

the

acquisition

control

other

companies.

Until

compliance

restored,

the

Federal

Reserve

Board

has

broad

discretion

impose

appropriate

limitations

the

financial holding

company’s

activities. The Corporation

and FirstBank must

be “well-capitalized”

and “well-managed”

for regulatory

purposes,

and

FirstBank

must

earn

“satisfactory”

better

ratings

its

periodic

Community

Reinvestment

Act

(“CRA”)

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

Under

federal

law

and

Federal

Reserve

Board

policy,

bank

holding

company

such

the

Corporation

expected

act

source of strength

to its banking

subsidiaries and to

commit required

levels of support

to them. This

support may be

required at times

when,

absent

such

policy,

the

bank

holding

company

might

not

otherwise

provide

such

support.

the

event

bank

holding

company’s

bankruptcy,

any

commitment

by the

bank holding

company

to a

federal bank

regulatory

agency to

maintain capital

of a

subsidiary bank will

be assumed by

the bankruptcy trustee

and be entitled

to a priority

of payment. In

addition, any capital

loans by a

bank

holding

company

any

its

subsidiary

banks

must

subordinated

right

payment

deposits

and

certain

other

indebtedness

such

subsidiary

bank.

December

31,

2023,

and

the

date

hereof,

FirstBank

was

and

the

only

banking

subsidiary of the Corporation.

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

in General

FirstBank is

subject to

regulation and

examination by

the OCIF,

the CFPB

and the

FDIC, and

is subject

to comprehensive

federal

and state

(including, for

this purpose,

the Commonwealth

of Puerto

Rico) regulations

that regulate,

among other

things, the

scope of

its businesses, its

investments, its

reserves against

deposits, the

timing and

availability of deposited

funds, and

the nature and

amount

of collateral for certain loans.

The

OCIF,

the

CFPB

and

the

FDIC

periodically

examine

FirstBank

test

the

Bank’s

conformance

safe

and

sound

banking

practices and

compliance with

various statutory

and regulatory

requirements. This

oversight establishes

a comprehensive

framework

permissible

activities,

and

the

supervision

the

FDIC

also

intended

for

the

protection

the

FDIC’s

insurance

fund

and

depositors.

These

regulatory

authorities

have

discretion

connection

with

their

supervisory

and

enforcement

activities

and

examination policies, including policies

with respect to the classification of

assets and the establishment of adequate

loan loss reserves

for regulatory purposes.

Their enforcement authority

includes, among other

things, the ability to

assess civil monetary

penalties, issue

cease-and-desist

removal

orders,

and

initiate

injunctive

actions

against

banking

organizations

and

institution-affiliated

parties.

general,

these

enforcement

actions

may

initiated

for

violations

laws

and

regulations

and

for

engaging

unsafe

unsound

practices.

In addition,

certain bank

actions are

required by

statute and

implementing regulations.

Other actions

or failure

to act

may

provide the basis for enforcement action, including the filing of misleading or

untimely reports with regulatory authorities.

Regulatory Capital Requirements

The federal

banking agencies

have implemented

rules for

U.S. banks

that establish

minimum

regulatory capital

requirements, the

components

regulatory

capital,

and

the

risk-based

capital

treatment

bank

assets

and

off-balance

sheet

exposures.

These

rules

currently

apply

the

Corporation

and

FirstBank,

and

generally

are

intended

align

U.S.

regulatory

capital

requirements

with

international regulatory capital standards

adopted by the Basel Committee on Banking

Supervision (“Basel Committee”), in particular,

the international capital accord known as “Basel III.”

The current rules require a minimum common

equity capital requirement and an

additional common equity Tier 1 capital conservation

buffer.

Under

the fully

phased-in Basel

III rules,

in order

to be

considered

adequately

capitalized and

not subject

to the

above-described

limitations,

the Corporation

is required

to maintain:

(i) a

minimum

common equity

Tier

1 Capital

(“CET1”)

to risk-weighted

assets

ratio of

at least

4.5%, plus

the 2.5%

“capital conservation

buffer,”

resulting in

a required

minimum CET1

ratio of

at least

7%; (ii)

minimum ratio

of total Tier

1 capital to

risk-weighted assets

of at least

6.0%, plus

the 2.5% capital

conservation buffer,

resulting in

required

minimum Tier

1 capital

ratio of

8.5%; (iii)

a minimum

ratio of

total Tier

1 plus

Tier

2 capital

to risk-weighted

assets of

least 8.0%, plus

the 2.5% capital

conservation buffer,

resulting in a required

minimum total capital ratio

of 10.5%; and

(iv) a required

minimum leverage ratio of 4%, calculated as the ratio of Tier

1 capital to average on-balance sheet (non-risk adjusted) assets.

Further,

as part

of its

response

to the

impact

of COVID-19,

on March

31, 2020,

federal banking

agencies

issued an

interim final

rule that provided

the option to

temporarily delay

the effects of

current expected

credit losses (“CECL”)

on regulatory capital

for two

years,

followed

three-year

transition

period.

The

interim

final

rule

provides

that,

the

election

qualified

banking

organization,

the

initial

impact

the

adoption

CECL

retained

earnings

plus 25%

the

change

the

ACL

(excluding

purchased credit deteriorated (“PCD”)

loans) from January

1, 2020 to December 31,

2021 will be delayed for

two years and phased-in

at 25%

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition

period

five

years.

The

Corporation and the Bank elected to phase in the full effect of CECL on regulatory

capital over the five-year transition period.

The Corporation

and the

Bank compute

risk-weighted assets

using the

Standardized Approach

required by

the Basel

III rules.

The

Standardized

Approach

expands

the

risk-weighting

categories

from

the

four

major

categories

under

the

regulatory

capital

rules (0%, 20%, 50%, and 100%) to a much larger and

more risk-sensitive number of categories, depending on the nature of the

assets.

Specific changes to the

risk-weightings of assets included,

among other things: (i) applying

a 150% risk weight instead

of a 100% risk

weight for high

volatility commercial real

estate acquisition, development

and construction loans,

(ii) assigning a 150%

risk weight to

exposures that are 90

days past due (other

than qualifying residential mortgage

exposures, which remain at

an assigned risk-weighting

of 100%),

(iii) establishing

a 20%

credit conversion

factor for

the unused

portion of

a commitment

with an

original maturity

of one

year or less that

is not unconditionally

cancellable, in contrast

to the 0% risk-weighting

under the prior

rules and (iv) requiring

capital

to be maintained against on-balance-sheet and

off-balance-sheet exposures that result from certain

cleared transactions, guarantees and

credit derivatives, and collateralized transactions (such as repurchase

agreement transactions).

addition,

the

Collins

Amendment

the

Dodd-Frank

Act,

among

other

things,

eliminates

certain

trust-preferred

securities

(“TRuPs”)

from

Tier

capital.

Preferred

securities

issued

under

the

U.S.

Treasury’s

Troubled

Asset

Relief

Program

(“TARP”)

are

exempt from

this change.

Bank holding

companies, such

as the

Corporation, were

required to

fully phase

out these

instruments from

Tier

capital

January

2016;

however,

these

instruments

may

remain

Tier

capital

until

the

instruments

are

redeemed

matured.

As of

December 31,

2023,

the Corporation

had $156.9

million

in TRuPs

that were

subject to

a full

phase-out

from

Tier

capital under the final regulatory capital rules discussed above.

Set forth below are the Corporation's and FirstBank's capital ratios as of December 31,

2023 based on Federal Reserve and FDIC

guidelines:

Banking Subsidiary

First BanCorp.

FirstBank

Well-Capitalized

Minimum

As of December 31, 2023

Total capital (Total

capital to risk-weighted assets)

18.57%

18.36%

10.00%

CET1 Capital (CET1 capital to risk-weighted assets)

16.10%

16.33%

6.50%

Tier 1 capital ratio (Tier

1 capital to risk-weighted assets)

16.10%

17.11%

8.00%

Leverage ratio

(1)

10.78%

11.45%

5.00%

_______________

(1) Tier 1 capital to average assets.

Stress-Testing

and Capital Planning Requirements

Federal

regulations

currently

not

impose

formal

stress-testing

requirements

banking

organizations

with

total

assets

less

than $100

billion, such

as the Corporation

and FirstBank.

The federal

banking agencies

have indicated

through interagency

guidance

that the

capital planning

and risk

management

practices of

institutions with

total assets

of less

than $100

billion will

continue

to be

reviewed through the regular

supervisory process. Notwithstanding,

the Corporation monitors its

capital consistent with the

safety and

soundness expectations

of the

federal regulators

and continues

to perform

internal stress

testing as

part of

its annual

capital planning

process.

Dividend Restrictions

The Federal

Reserve Board

has a

policy

that, as

a matter

of prudent

banking,

a bank

holding

company should

generally not

pay

cash

dividends

unless

its

net

income

available

common

shareholders

for

the

past

four

quarters,

net

dividends

previously

paid

during

that

period,

has

been

sufficient

fully

fund

the

dividends

and

the

prospective

rate

earnings

retention

appears

consistent with the organization’s

capital needs, asset quality,

and overall current and prospective financial condition. Furthermore,

the

Federal

Reserve Board’s

regulatory capital

rule (Regulation

Q) limits

the amount

of capital

a bank

holding

company may

distribute

under certain circumstances. A banking

organization must maintain

a capital conservation buffer

of CET1 capital in an amount

greater

than 2.5% of

total risk weighted

assets to avoid being

subject to limitations on

capital distributions. The

Corporation is also

subject to

certain restrictions

generally imposed

on Puerto

Rico corporations

with respect

to the declaration

and payment

of dividends

(i.e., that

dividends may

be paid

out only

from the

Corporation’s

capital surplus

or,

in the

absence of

such excess,

from the

Corporation’s

net

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

The principal

source of

funds for

the Corporation,

as a

parent holding

company,

is dividends

declared and

paid by

its subsidiary,

FirstBank. The

ability of

FirstBank to

declare and

pay dividends

on its

capital stock

is regulated

by the

Puerto Rico

Banking Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

the

Federal

Deposit

Insurance

Act

(the

“FDIA”),

and

FDIC

regulations.

general

terms,

the

Puerto

Rico

Banking

Law

provides

that when

the

expenditures

of a

bank

are greater

than

receipts,

the

excess

expenditures over

receipts shall

be charged

against undistributed

profits of

the bank

and the

balance, if

any,

shall be

charged

against

the required

reserve fund

of the

bank. If

the reserve

fund is

not sufficient

to cover

such balance

in whole

or in

part, the

outstanding

amount must

be charged

against the

bank’s

capital account.

The Puerto

Rico Banking

Law provides

that, until

said capital

has been

restored to its original

amount and the reserve

fund to 20% of

the original capital, the

bank may not declare

any dividends. In general,

regulations

the

FDIA

and

the

FDIC

restrict

the

payment

dividends

when

bank

undercapitalized

(as

discussed

Prompt

Corrective

Action

below),

when

bank

has

failed

pay

insurance

assessments,

when

there

are

safety

and

soundness

concerns

regarding such bank.

Refer

Part

II,

Item

“Market

for

Registrant’s

Common

Equity,

Stockholder

Matters

and

Issuer

Purchases

Equity

Securities” of this Form 10-K for further information on the Corporation

’s distribution of dividends and repurchases

of common stock.

Consumer Financial Protection Bureau

The CFPB has

primary examination

and enforcement authority

over FirstBank and

other banks with

over $10 billion

in assets with

respect to consumer financial products and services.

The

CFPB’s

primary

functions

include

the

supervision

“covered

persons”

(broadly

defined

include

any

person

offering

providing a consumer

financial product or

service and any

affiliated service

provider) for compliance

with federal consumer

financial

laws.

implements

amendments

and

has

primary

authority

enforce

the

federal

consumer

financial

laws,

including

the

Equal

Credit Opportunity Act, the Truth

in Lending Act (“TILA”) and the

Real Estate Settlement Procedures Act (“RESPA”),

among others.

The

CFPB

also

has

broad

powers

prescribe

rules

applicable

covered

person

service

provider

connection

with

any

transaction with a consumer for a consumer financial product or service,

or the offering of a consumer financial product or service.

Among other

actions, the

CFPB has

issued regulations

setting forth

mortgage servicing

rules that

apply to

the Bank,

which affect

consumer notices

regarding delinquency,

foreclosure alternatives,

modification applications,

interest rate

adjustments and

options for

avoiding

“force-placed”

insurance.

Further,

the

CFPB has

adopted

rules and

forms

that

combine

certain

disclosures

that

consumers

receive in connection with applying for and closing on a mortgage loan under

the TILA and the RESPA.

The Volcker

Rule

Section 13 of the Bank Holding

Company Act (commonly known as

the Volcker

Rule), generally prohibits a banking

entity such as

the Corporation or the

Bank from acquiring or

retaining any ownership

in, or acting as sponsor

to, a hedge fund

or private equity fund

(“covered

fund”).

The

Volcker

Rule

also

prohibits

these

entities

from

engaging,

for

their

own

account,

short-term

proprietary

trading of certain securities, derivatives, commodity futures and options on

these instruments.

The Corporation and

the Bank are not engaged

in “proprietary trading” as

defined in the Volcker

Rule. In addition, the

Corporation

has reviewed its investments and concluded that they are not considered

covered funds under the Volcker

Rule.

Community Reinvestment Act and Home Mortgage Disclosure Act Regulations

The CRA encourages

banks to help meet

the credit needs of

the local communities in

which they offer

services, including low- and

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

of the bank.

The

CRA

requires

the

federal

supervisory

agencies,

part

the

general

examination

supervised

banks,

assess

bank’s

record of meeting the

credit needs of its

community,

assign a performance rating,

and take such record

and rating into account

in their

evaluation

of certain

applications by

such bank,

such as

an application

for approval

of a

merger

or the

establishment of

a branch.

rating of

less than “satisfactory”

could result

in the denial

of such applications.

The CRA

also requires

all institutions

to make

public

disclosure of their CRA ratings. FirstBank received a “satisfactory” CRA rating in

its most recent examination by the FDIC.

October

2023,

the

U.S.

federal

banking

regulatory

agencies

issued

final

rule

strengthen

and

modernize

their

regulations

implementing the

CRA. The

final rule,

among other

things, revises

the CRA

regulations to

better achieve

the CRA’s

core purpose

encouraging banks to help

meet the credit needs

of their local communities;

provides greater clarity

and consistency in the

application

of CRA regulations;

tailors performance standards,

data collection, and reporting

requirements to account

for differences in

bank size,

business model,

and local

conditions; and

promotes a

consistent regulatory

approach that

applies to

banks regulated

by the

OCC, the

Federal Reserve Board and the FDIC. The final rule takes effect

on April 1, 2024, with staggered compliance dates of January

1, 2026,

and January 1, 2027.

USA PATRIOT

Act and Other Anti-Money Laundering Requirements

As a regulated

depository institution,

FirstBank is subject

to the

Bank Secrecy

Act, which imposes

a variety of

reporting and

other

requirements,

including

the requirement

to file

suspicious

activity and

currency

transaction

reports that

are designed

to assist

in the

detection and prevention

of money laundering,

terrorist financing and

other criminal activities.

In addition, under

Title III

of the USA

PATRIOT

Act of 2001,

all financial institutions

are required to

identify their customers,

adopt formal and

comprehensive anti-money

laundering programs,

scrutinize or

prohibit certain

transactions of

special concern,

and be

prepared to

respond to

inquiries from

U.S.

law enforcement agencies concerning their customers and their transactions.

January

2021,

major

legislative

amendments

U.S.

anti-money

laundering

requirements

became

effective

through

the

enactment

Division

the

National

Defense

Authorization

Act

for

fiscal

year

2021,

otherwise

known

the

Anti-Money

Laundering

Act

2020

(the

“AML

Act”).

The

AML

Act

includes

variety

provisions

designed

modernize

the

anti-money

laundering

regulatory

regime

and

remediate

gaps

the

U.S.’s

approach

anti-money

laundering

and

countering

the

financing

terrorism,

including the

creation of

a national

database of

absence corporate

beneficial ownership

along with

significantly enhanced

reporting

requirements,

increased

penalties

for

Bank

Secrecy

Act

violations,

clarification

Suspicious

Activity

Report

filing

and

sharing

requirements,

and

provisions

addressing

the

adverse

consequences

“de-risking,”

namely,

the

practice

financial

institutions’ termination or

limitation of business relationships

with clients or classes

of clients in order

to manage the risks

associated

with such clients.

Regulations implementing the Bank Secrecy Act and the USA

PATRIOT

Act are published and primarily enforced by

the Financial

Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Treasury.

Failure of a financial institution, such as the Corporation

the

Bank,

comply

with

the

requirements

the

Bank

Secrecy

Act

the

USA

PATRIOT

Act

could

have

serious

legal

and

reputational

consequences

for

the

institution,

including

the

possibility

regulatory

enforcement

other

legal

actions,

such

significant

civil

monetary

penalties.

The

Corporation

also

required

comply

with

federal

economic

and

trade

sanctions

requirements enforced by the Office of Foreign Assets Control

(“OFAC”), a bureau

of the U.S. Treasury.

The Corporation believes

it has adopted appropriate

policies, procedures and controls

to address compliance with

the Bank Secrecy

Act, USA

PATRIOT

Act and

economic/trade

sanctions requirements,

and to

implement banking

agency,

FinCEN, OFAC

and

other

U.S. Treasury regulations.

Financial Privacy and Cybersecurity

The Gramm-Leach-Bliley

Act limits the ability

of financial institutions to

disclose non-public information

about consumers to non-

affiliated

third

parties.

These

limitations

require

disclosure

privacy

policies

consumers

and,

some

circumstances,

allow

consumers to prevent disclosure of certain personal information to

a non-affiliated third party.

The

federal

banking

regulators

regularly

issue

guidance

regarding

cybersecurity

intended

enhance

cyber

risk

management

standards among financial

institutions. A financial

institution is expected

to establish multiple

lines of defense

and to ensure

their risk

management processes

address the

risk posed

by potential

threats to

the institution.

A financial

institution’s

management is

expected

maintain

sufficient

processes

effectively

respond

and

recover

the

institution’s

operations

after

cyber-attack.

financial

institution

also

expected

develop

appropriate

processes

enable

recovery

data

and

business

operations

critical

service

provider

of the

institution

falls victim

to this

type

a cyber-attack.

Our Corporate

Information

Security

Program

(“CISP”) reflects

these

requirements

and

outlines

our

overall

vision,

direction,

and

governance

efforts

protect

the

confidentiality,

integrity,

and

availability of customer information and prevent access by unauthorized

personnel.

July

2023,

the

SEC

adopted

rules

requiring

registrants

disclose

material

cybersecurity

incidents

they

experience

and

disclose on

an annual

basis material

information

regarding their

cybersecurity

risk management,

strategy,

and governance.

The new

rules

require

registrants

disclose

the

new

Item

1.05

Form

8-K

any

cybersecurity

incident

they

determine

material

generally

within

four

business

days

such

determination

and

describe

the

material

aspects

the

incident’s

nature,

scope,

and

timing, as

well as

its material

impact or

reasonably likely

material impact

on the

registrant. The

new rule

also added

Regulation S-K

Item 106,

which requires

disclosure of

the registrant’s

processes, if

any,

for assessing,

identifying, and

managing material

risks from

cybersecurity

threats,

well

the

material

effects

reasonably

likely

material

effects

risks

from

cybersecurity

threats

and

previous cybersecurity

incidents on

the new

Item 1C.

Cybersecurity of

Form 10-K.

Item 106

also requires

registrants to

describe the

board

directors’

oversight

risks

from

cybersecurity

threats

and

management’s

role

and

expertise

assessing

and

managing

material risks from such threats. These disclosures were included in Part I, Item

1C, “Cybersecurity” to this Form 10-K.

Limitations on Transactions with Affiliates

and Insiders

Certain transactions between FDIC-insured

banks financial institutions such

as FirstBank and its affiliates

are governed by Sections

23A and

23B of the

Federal Reserve Act

and by

Federal Reserve

Regulation W.

An affiliate

of a bank

is, in general,

any corporation

or entity

that controls,

is controlled

by,

or is

under common

control with

the bank,

including the

bank’s

parent holding

company and

any companies that are controlled by such holding company.

Generally,

Sections 23A and 23B of

the Federal Reserve Act (i)

limit the extent to which

the bank or its subsidiaries

may engage in

“covered

transactions”

with

any

one

affiliate

amount

equal

10%

such

bank’s

capital

stock

and

surplus,

and

contain

aggregate limit

on all

such transactions

with all

affiliates to

an amount

equal to 20%

of such

bank’s

capital stock and

surplus and

(ii)

require that

all “covered

transactions” be

on terms

that are

substantially the

same, or

at least

as favorable

to the

bank or

affiliate,

those

provided

non-affiliate.

The

term

“covered

transaction”

includes

the

making

loans,

purchase

assets,

issuance

guarantee, credit

derivatives, securities

lending and

other similar

transactions entailing

the provision

of financial

support by

the bank

to an affiliate. In

addition, loans or other extensions

of credit by the bank to

the affiliate are required

to be collateralized in accordance

with the requirements set forth in Section 23A of the Federal Reserve Act.

addition,

Sections

22(h)

and

(g)

the

Federal

Reserve

Act,

implemented

through

Regulation

place

restrictions

commercial bank loans to executive officers,

directors, and principal stockholders of

the bank and its affiliates. Under

Section 22(h) of

the Federal Reserve

Act, bank loans to

a director, an

executive officer,

a greater than 10%

stockholder of the

bank, and certain related

interests of these persons,

may not exceed, together

with all other outstanding

loans to such persons

and affiliated interests,

the bank’s

limit on loans

to one borrower,

which is generally

equal to 15%

of the bank’s

unimpaired capital and

surplus in the

case of loans

that

are not fully secured,

and an additional 10% of

the bank's unimpaired capital

and unimpaired surplus in

the case of loans that

are fully

secured by

readily marketable

collateral having

a market

value at

least equal

to the

amount of

the loan.

Section 22(h)

of the

Federal

Reserve Act also requires

that loans to directors,

executive officers, and

principal stockholders be made

on terms that are substantially

the same

as offered

in comparable

transactions to

other persons

and also

requires prior

board approval

for certain

loans. In

addition,

the

aggregate

amount

extensions

credit

bank

insiders

cannot

exceed

the

bank’s

unimpaired

capital

and

surplus.

Furthermore, Section 22(g) of the Federal Reserve Act places additional

restrictions on loans to executive officers.

Executive Compensation

The federal banking agencies have

adopted interagency guidance governing

incentive-based compensation programs,

which applies

all

banking

organizations

regardless

asset

size.

This

guidance

uses

principles-based

approach

ensure

that

incentive-based

compensation arrangements

appropriately tie

rewards to

longer-term performance

and do

not undermine

the safety

and soundness

banking organizations

or create

undue risks

to the

financial system.

The interagency

guidance is

based on

three major

principles:

(i)

balanced risk-taking

incentives; (ii) compatibility

with effective

controls and

risk management; and

(iii) strong

corporate governance.

The guidance further provides

that, where appropriate, the

banking agencies will take supervisory

or enforcement action to ensure

that

material deficiencies that pose a threat to the safety and soundness of the organization

are promptly addressed.

In May 2016, the federal financial regulators proposed

regulations (first proposed in 2011) governing

incentive-based compensation

practices at

covered

banking institutions,

which

would

include,

among

others,

all banking

organizations

with assets

$1 billion

greater.

Portions of these

proposed rules would

apply to the

Corporation and FirstBank.

Those applicable provisions

would generally

(i)

prohibit

types

and

features

incentive-based

compensation

arrangements

that

encourage

inappropriate

risk

because

they

are

“excessive”

“could

lead

material

financial

loss”

the

banking

institution;

(ii)

require

incentive-based

compensation

arrangements to

adhere to

three basic

principles: (1)

a balance

between risk

and reward;

(2) effective

risk management

and controls;

and

(3)

effective

governance;

and

(iii)

require

appropriate

board

directors

(or

committee)

oversight

and

recordkeeping

and

disclosures

the

banking

institution’s

primary

regulatory

agency.

The

nature

and

substance

any

final

action

adopt

these

proposed rules, and the timing of any such action, are not known at this time.

In October

2022, the

SEC finalized

a rule

that directs

stock exchanges

to require

listed companies

to implement

clawback policies

to recover

incentive-based compensation

from current

or former

executive officers

in the

event of

certain financial

restatements, and

requires

companies

to,

among

other

things,

file

their

clawback

policies

Exhibit

Form

10-K.

Our

Compensation

Clawback

Policy is compliant with NYSE’s listing

standards pursuant to this new rule, and is filed as Exhibit 97.1 to this Form 10-K.

Prompt Corrective Action

The

“prompt

corrective

action”

provisions

the

FDIA

require

the

federal

bank

regulatory

agencies

take

prompt

corrective

action

against

any

insured

depository

institution

that

undercapitalized.

The

FDIA

establishes

five

capital

categories:

well-

capitalized,

adequately

capitalized,

undercapitalized,

significantly

undercapitalized,

and

critically

undercapitalized.

Well-capitalized

insured depository institutions significantly exceed the required minimum level

for each relevant capital measure.

A bank’s

capital category

may not

constitute

an accurate

representation

of the

overall financial

condition

or prospects

of a

bank,

such

the

Bank,

and

should

considered

conjunction

with

other

available

information

regarding

the

financial

condition

and

results of operations of such bank.

Deposit Insurance

FirstBank

subject

FDIC

deposit

insurance

assessments,

which

increased

for

all

banks,

including

FirstBank,

following

the

increase

deposit

insurance

coverage

$250,000

per

customer

and

the

FDIC’s

expanded

authority

increase

insurance

premiums implemented

by the

Dodd-Frank Act.

The FDIA

further requires

that the

designated reserve

ratio for

the DIF

for any

year

not be

less than

1.35% of

estimated insured

deposits or

the comparable

percentage of

the new

deposit assessment

base.

In addition,

the FDIC

was required

to take

the necessary

actions for

the reserve

ratio to

reach 1.35%

of estimated

insured deposits

by September

30, 2020.

The FDIC

managed to

reach the

goal early,

achieving a

reserve ratio

of 1.36%

in September

2018. However,

in the

third

quarter of

2020, the

FDIC announced

that the

reserve ratio

of the

DIF fell

nine basis

points between

the first

and second

quarters of

2020,

from 1.39%

to 1.30%.

The decline

was attributed

to an

unprecedented

surge

in deposits.

The FDIC

approved

a plan

that

expected to restore

the DIF to

at least 1.35%

within eight years,

as required by

the FDIA. Under

the plan, the

FDIC will maintain

the

current

schedules

of assessment

rates for

all banks;

monitor

deposit

balance

trends,

potential losses

and

other

factors

that

affect

the

reserve

ratio;

and

provide

updates

its

loss

and

income

projections

least twice

year.

The

FDIC has

also

adopted

final

rule

raising its

industry target

ratio of

reserves to

insured deposits

to 2%,

65 basis

points above

the statutory

minimum, but

the FDIC

has

indicated that it does not project that goal to be met for several years.

October

2022,

the

FDIC

adopted

final

rule,

applicable

all

insured

depository

institutions,

increase

initial

base

deposit

insurance assessment rate schedules

uniformly by 2 basis points,

beginning in the first quarterly

assessment period of 2023.

The FDIC

also

concurrently

maintained

the

designated

reserve

ratio

for

the

DIF

for

2023.

The

increase

assessment

rate

schedules

intended to increase

the likelihood that

the reserve ratio

of the DIF

reaches the statutory

minimum of

1.35% by the

statutory deadline

of September 30, 2028. The new assessment rate schedules

will remain in effect unless and until the reserve

ratio meets or exceeds 2%

in order

to support growth

in the DIF

and progress

toward the FDIC’s

long-term goal

of a 2%

designated reserve

ratio. Progressively

lower

assessment

rate

schedules

will

take

effect

when

the reserve

ratio

reaches

and

again

when

reaches

2.5%.

For

2023,

the

Corporation recognized an increase of

approximately $2.4 million in deposit insurance

expense, when compared to 2022, as

a result of

the increase on the initial base deposit insurance assessment rate.

In November 2023, the

FDIC approved a final rule

to implement a special assessment

to recover the loss to

the DIF associated with

protecting uninsured

depositors following

the closure

of Silicon Valley

Bank and

Signature Bank during

the first half

of 2023.

Under

the final

rule,

the FDIC

will

collect the

special assessment

at a

quarterly

rate of

3.36

basis points

beginning

with the

first

quarterly

assessment period

of 2024 (i.e,

January 1 through

March 31, 2024)

with an invoice

payment date

of June 28,

2024, and will

continue

collect

special

assessments

for

anticipated

total

eight

quarterly

assessment

periods.

The

base

for

the

special

assessment

equal to the

estimated uninsured deposits

reported for the

December 31, 2022

reporting period, adjusted

to exclude the

first $5 billion

of such amount. In association with this final rule,

during the fourth quarter of 2023, the Corporation

recorded a charge of $6.3 million

in the

consolidated statements

of income

as part

of “FDIC

deposit insurance

expenses,” which

reflects the

expected total

payment to

be made

to the

FDIC as

of December

31, 2023.

The FDIC

retains the

ability to

cease collection

early,

extend the

special assessment

collection period

beyond the

eight-quarter collection

period, or

impose an

additional shortfall

special assessment

on a

one-time basis

after the receiverships for the two banks are terminated.

FDIC Insolvency Authority

Under

Puerto

Rico banking

laws, the

OCIF may

appoint

the FDIC

as conservator

or receiver

of a

failed or

failing

FDIC-insured

Puerto Rican bank, and

the FDIA authorizes the FDIC

to accept such an appointment.

In addition, the FDIC has

broad authority under

the FDIA

to appoint

itself as

conservator

or receiver

of a

failed or

failing state

bank, including

a Puerto

Rican bank.

If the

FDIC is

appointed

conservator

receiver

bank

upon

the

bank’s

insolvency

the

occurrence

other

events,

the

FDIC

may

sell

transfer some, part or all

of a bank’s

assets and liabilities to another bank,

or liquidate the bank and pay

out insured depositors, as well

as uninsured

depositors and

other creditors

to the

extent of

the closed

bank’s

available assets.

As part

of its

insolvency authority,

the

FDIC has

the authority,

among other

things, to

take possession

of and

administer the

receivership

estate, pay

out estate

claims,

and

repudiate or

disaffirm certain

types of

contracts to

which the

bank was

a party

if the

FDIC believes

such contract

is burdensome

and

its disaffirmance

will aid

the

administration

of the

receivership.

The

FDIA

provides

that, in

the

event

the

liquidation

other

resolution of

an insured

depository institution,

including the

Bank, the

claims of

depositors of

the institution

(including the

claims of

the

FDIC

subrogee

insured

depositors)

and

certain

claims

for

administrative

expenses

the

FDIC

receiver

would

have

priority over

other general

unsecured claims

against the

institution. If

the Bank

were to

fail, insured

and uninsured

depositors, along

with the

FDIC, would

have priority

in payment

ahead of

unsecured, non-deposit

creditors, including

the Corporation,

with respect

any extensions of credit they have made to such insured depository institution.

Activities and Investments

The

principal

activities

FDIC-insured,

state-chartered

banks,

such

FirstBank,

are

generally

limited

those

that

are

permissible for national

banks. Similarly,

under regulations dealing

with equity investments, an

insured state-chartered bank

generally

may not directly

or indirectly acquire or

retain any equity

investments of a type,

or in an amount,

that is not permissible

for a national

bank.

Federal Home Loan Bank System

FirstBank is

a member

of the

FHLB system.

The FHLB

system consists

of eleven

regional FHLBs

governed and

regulated by

the

Federal

Housing

Finance

Agency.

The

FHLBs

serve

reserve

credit

facilities

for

member

institutions

within

their

assigned

regions.

FirstBank is a member

of the FHLB of

New York

and, as such,

is required to

acquire and hold

shares of capital

stock in the

FHLB

of New York

in an amount calculated

in accordance with the

requirements set forth in

applicable laws and regulations.

FirstBank is in

compliance

with

the

stock

ownership

requirements

the

FHLB

New

York.

All

loans,

advances

and

other

extensions

credit

made

the

FHLB

FirstBank

are

secured

portion

FirstBank’s

mortgage

loan

securities

portfolios,

certain

other

investments and the capital stock of the FHLB held by FirstBank.

The board of

directors of each

FHLB can increase

the minimum investment

requirements if it

has concluded that

additional capital

is required to meet its own regulatory capital requirements. Any

increase in the minimum investment requirements outside of specified

ranges requires

the approval of

the Federal Housing

Finance Agency.

Because the extent

of any obligation

to increase our

investment

in any of

the FHLBs depends

entirely upon

the occurrence of

a future

event, the

amount of any

future investment

in the capital

stock

of the FHLBs is not determinable.

Ownership and Control

Because

FirstBank’s

status

FDIC-insured

bank,

defined

the

Bank

Holding

Company

Act,

the

Corporation,

the

owner of

FirstBank’s

common stock,

is subject to

certain restrictions and

disclosure obligations

under various federal

laws, including

the

Bank

Holding

Company

Act

and

the

Change

Bank

Control

Act

(the

“CBCA”).

Regulations

adopted

pursuant

the

Bank

Holding Company Act and

the CBCA generally require prior

Federal Reserve Board or other federal

banking agency approval or non-

objection for an acquisition

of control of an “insured

institution” (as defined in

the Act) or holding

company thereof by any person

(or

persons acting in

concert). Control is deemed

to exist if, among

other things, a person

(or group of persons

acting in concert)

acquires

25% or more

of any class of

voting stock of

an insured institution

or holding company

thereof. Under the CBCA,

control is presumed

to exist

subject to

rebuttal if

a person

(or group

of persons

acting in

concert) acquires

10% or

more of

any class

of voting

stock and

either (i) the

corporation has

registered securities under

Section 12

of the Exchange

Act, or (ii)

no person (or

group of persons

acting

concert)

will own,

control

hold

the

power

vote

greater

percentage

of that

class of

voting

securities

immediately

after

the

transaction.

The

concept

acting

concert

broad

and

subject

certain

rebuttable

presumptions,

including,

among

others,

that

relatives, business partners,

management officials,

affiliates and

others are

presumed to

be acting in

concert with

each other

and their

businesses. The regulations of the FDIC implementing the CBCA are generally

similar to those described above.

The Puerto

Rico Banking

Law requires

the approval

of the

OCIF for

changes in

control of

a Puerto

Rico bank.

See “Puerto

Rico

Banking Law” below for further detail.

Standards for Safety and Soundness

The

FDIA

requires

the

FDIC

and

other

federal

bank

regulatory

agencies

prescribe

standards

safety

and

soundness.

Bank

regulators

have

various

remedies

available

they

determine

that

the

financial

condition,

capital

resources,

asset

quality,

earnings

prospects, management,

liquidity,

or other

aspects of

a banking

organization’s

operations are

unsatisfactory.

The regulators

may also

take action

if they

determine that

the banking

organization or

its management

is violating

or has

violated any

law or

regulation. The

regulators

have

the

power

to,

among

other

things,

prohibit

unsafe

unsound

practices,

require

affirmative

actions

correct

any

violation

practice,

issue

administrative

orders

that

can

judicially

enforced,

direct

increases

capital,

direct

the

sale

subsidiaries

other

assets,

limit

dividends

and

distributions,

restrict

growth,

assess

civil

monetary

penalties,

remove

officers

and

directors, and terminate deposit insurance.

Engaging in

unsafe or

unsound practices

or failing

to comply

with applicable

laws, regulations,

and supervisory

agreements could

subject

the

Corporation,

its

subsidiaries,

and

their

respective

officers,

directors,

and

institution-affiliated

parties

the

remedies

described above,

and other

sanctions. In

addition, the

FDIC may

terminate a

bank’s

deposit insurance

upon a

finding that

the bank’s

financial condition is unsafe or unsound

or that the bank has engaged in unsafe

or unsound practices or has violated

an applicable rule,

regulation, order, or condition enacted

or imposed by the bank’s regulatory

agency.

Brokered Deposits

FDIC regulations

adopted

under the

FDIA govern

the receipt

brokered deposits

by banks.

Well-capitalized

institutions are

not

subject

limitations

brokered

deposits,

while

adequately

capitalized

institutions

are

able

accept,

renew

rollover

brokered

deposits only

with a

waiver from

the FDIC

and subject

to certain

restrictions on

the interest

paid on

such deposits.

Undercapitalized

institutions

are

not

permitted

brokered

deposits.

October

2020,

the

FDIC

adopted

revisions

its

brokered

deposit

regulations that became

effective on April

1, 2021, with

full compliance extended

to January 1,

2022. For brokered

deposits, the final

rule established

a new framework

for analyzing

certain parts of

the “deposit

broker” definition,

including a new

interpretation for

the

“primary purpose” exception and the

business relationships that meet the exception.

Pursuant to this revision, during the fourth

quarter

of 2021, certain non-maturity deposits previously reported as brokered

deposits were recharacterized as non-brokered deposits.

Puerto Rico Banking Law

commercial

bank

organized

under

the

laws

the

Commonwealth

Puerto

Rico,

FirstBank

subject

supervision,

examination and regulation by the

commissioner of OCIF (the “Commissioner”)

pursuant to the Puerto Rico

Banking Law of 1933, as

amended (the “Banking Law”).

The Banking Law

contains various provisions

relating to FirstBank

and its affairs,

including its incorporation

and organization,

the

rights and responsibilities of

its directors, officers and

stockholders and its corporate powers,

lending limitations, capital requirements,

and investment requirements. In addition,

the Commissioner is given extensive rule-making

power and administrative discretion under

the Banking Law.

The Banking Law requires

every bank to maintain

a legal reserve, which shall

not be less than

20% of its demand

liabilities, except

government deposits (federal,

state and municipal) that

are secured by actual

collateral. The reserve is required

to be composed of

any

the

following

securities

combination

thereof:

(i) legal

tender

the

United

States;

(ii) checks

banks

trust

companies

located in any

part of Puerto

Rico that are

to be presented

for collection during

the day following

the day on

which they are

received;

(iii) money deposited

in other

banks provided

said deposits

are authorized

by the

Commissioner and

subject to

immediate collection;

(iv) federal

funds

sold

to any

Federal

Reserve

Bank

and

securities

purchased

under

agreements to

resell

executed

by the

bank

with

such funds

that are

subject to

be repaid

to the

bank on

or before

the close

of the

business day;

and

(v) any

other asset

that the

Commissioner identifies from time to time.

Section

the

Banking

Law

permits

Puerto

Rico

commercial

banks

make

loans

any

one

person,

firm,

partnership

corporation in an aggregate

amount of up to

15% of the sum of:

(i) the bank’s

paid-in capital; (ii) the bank’s

reserve fund; (iii) 50% of

the bank’s

retained earnings, subject

to certain limitations;

and (iv) any other

components that the

Commissioner may determine

from

time to time. If such loans are secured by

collateral worth at least 25% of the amount of the

loan, the aggregate maximum amount may

reach 33.33% of

the sum of

the bank’s

paid-in capital, reserve

fund, 50% of

retained earnings, subject

to certain limitations,

and such

other components

that the

Commissioner may

determine from

time to

time. There

are no

restrictions under

the Banking

Law on

the

amount of loans that may

be wholly secured by

bonds, securities and other

evidences of indebtedness of

the government of the

United

States,

the

Commonwealth

Puerto

Rico,

bonds,

not

default,

municipalities

instrumentalities

the

Commonwealth of Puerto Rico.

The Banking Law

requires that Puerto Rico

commercial banks prepare

each year a balance

summary of their

operations and submit

such balance

summary

for approval

at a

regular meeting

of stockholders,

together with

an explanatory

report thereon.

The Banking

Law also requires

that at least

10% of the

yearly net income

of a Puerto

Rico commercial bank

be credited annually

to a reserve

fund

until such reserve fund is in amount equal to the total paid-in-capital of the bank.

The

Banking

Law

also

provides

that

when

the

expenditures

Puerto

Rico

commercial

bank

are

greater

than

its

receipts,

the

excess of the expenditures

over receipts must be

charged against the

undistributed profits of the

bank, and the balance,

if any,

charged

against

the

reserve

fund,

as a

reduction

thereof.

there

is no

reserve

fund

sufficient

to cover

such balance

whole or

part,

the

outstanding amount

must be

charged against

the capital

account and

no dividend

may be declared

until said

capital has

been restored

to its original amount and the amount in the reserve fund equals 20% of the original

capital.

The Finance Board, which

is composed of nine members

from enumerated Puerto Rico

Government agencies, instrumentalities and

public

corporations,

including

the

Commissioner,

has

the

authority

regulate

the

maximum

interest

rates

and

finance

charges

that

may be

charged on

loans to

individuals

and unincorporated

businesses in

Puerto Rico.

The current

regulations of

the Finance

Board

provide that the applicable

interest rate on loans to

individuals and unincorporated

businesses, including real estate

development loans

but excluding certain

other personal and

commercial loans

secured by mortgages

on real estate

properties, is

to be determined

by free

competition. Accordingly,

the regulations do

not set a maximum

rate for charges

on retail installment

sales contracts, small

loans, and

credit card purchases. Furthermore, there is no

maximum rate set for installment sales contracts involving

motor vehicles, commercial,

agricultural and industrial equipment, commercial electric appliances and

insurance premiums.

International Banking Center Regulatory Act of Puerto Rico (“IBE Act 52”)

The business and operations

of FirstBank International Branch

(“FirstBank IBE” or the “IBE

division of FirstBank”) and

FirstBank

Overseas Corporation (the IBE

subsidiary of FirstBank) are subject

to supervision and regulation

by the Commissioner.

FirstBank and

FirstBank

Overseas

Corporation

were

created

under

Puerto

Rico

Act

52-1989,

amended,

known

the

“International

Banking

Center

Regulatory

Act”

(the

IBE

Act

52),

which

provides

for

total

Puerto

Rico

tax

exemption

net

income

derived

IBE

operating in

Puerto Rico

on the specific

activities identified

in the

IBE Act 52.

An IBE

that operates

as a

unit of a

bank pays

income

taxes at the corporate standard

rates to the extent that

the IBE’s net

income exceeds 20% of the bank’s

total net taxable income. Under

the IBE Act 52, certain

sales, encumbrances, assignments, mergers,

exchanges or transfers of shares,

interests or participation(s) in

the

capital

IBE

may

not be

initiated

without

the

prior

approval

of the

Commissioner.

The

IBE

Act

and

the regulations

issued

thereunder

the

Commissioner

(the

“IBE

Regulations”)

limit

the

business

activities

that

may

carried

out

IBE.

Such

activities are limited in part to persons and assets located outside of Puerto

Rico.

Pursuant to

the IBE Act

52 and the

IBE Regulations,

each of FirstBank

IBE and FirstBank

Overseas Corporation

must maintain

Puerto

Rico

books

and

records

its

transactions

the

ordinary

course

business.

FirstBank

IBE

and

FirstBank

Overseas

Corporation

are also

required to

submit to

the Commissioner

quarterly

and annual

reports of

their financial

condition and

results

operations, including annual audited financial statements.

The IBE Act

52 empowers

the Commissioner

to revoke

or suspend, after

notice and hearing,

a license issued

thereunder if,

among

other things, the IBE fails to

comply with the IBE Act 52, the IBE

Regulations or the terms of its license, or

if the Commissioner finds

that the business or affairs of the IBE are conducted in a manner that

is not consistent with the public interest.

In 2012, the Puerto Rico

government approved Act Number

273 (“Act 273”).

Act 273 replaces, prospectively,

IBE Act 52 with the

objective of

improving the

conditions for

conducting international

financial transactions

in Puerto Rico.

An IBE

existing on

the date

of approval

of Act

273, such

as FirstBank

IBE and

FirstBank Overseas

Corporation, can

continue operating

under IBE

Act 52,

or it

can

voluntarily

convert

International

Financial

Entity

(“IFE”)

under

Act

273

may

broaden

its

scope

Eligible

IFE

Activities, as

defined

below,

and

obtain

a grant

of tax

exemption

under Act

273.

As of

the date

of the

issuance of

this Form

10-K,

FirstBank IBE and FirstBank Overseas Corporation are operating under

IBE Act 52.

On February

16, 2024,

the Governor

of Puerto

Rico approved

Act 45

of 2024

which amends

the IBE

Act. The

amendments of

the

IBE Act are effective on

May 15, 2024, and, among other things,

the amendments include an increase to

the annual license fee paid by

the

IBEs

OCIF

from

thousand

$25

thousand

and

amends

certain

other

compliance

matters.

The

Corporation

continues

evaluate the complete impact of the amendments but understands that they

do not have a material impact to the Corporation.

Puerto Rico Income Taxes

Under the

Puerto Rico

Internal Revenue

Code of

2011,

as amended

(the “PR

Tax

Code”), the

Corporation and

its subsidiaries

are

treated

separate

taxable

entities

and

are

not

entitled

file

consolidated

tax

returns

and,

thus,

the

Corporation

generally

not

entitled

utilize

losses

from

one

subsidiary

offset

gains

another

subsidiary.

Accordingly,

obtain

tax

benefit

from

net

operating

loss

(“NOL”),

particular

subsidiary

must

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

However,

certain

subsidiaries

that

are organized

as limited

liability

companies

with

a partnership

election

are

treated as

pass-through entities

for Puerto

Rico tax

purposes. The

PR Tax

Code provides

a dividend

received deduction

of 100%

dividends received from “controlled” subsidiaries subject to taxation

in Puerto Rico and 85% on dividends received from other

taxable

domestic corporations.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

maximum

statutory

rate

Puerto

Rico,

which

has

resulted

mainly

from conducting

business through

certain

entities

that have

special

tax treatments,

including

doing business

through

IBE

unit of the

Bank and through

FirstBank Overseas Corporation,

each of which

are generally exempt

from Puerto

Rico income taxation

under IBE

Act 52,

and through

a wholly-owned

subsidiary that

engages in

certain Puerto

Rico qualified

investing activities

that have

certain tax advantages under Act 60 of 2019.

United States Income Taxes

Puerto

Rico

corporation,

First

BanCorp.

treated

foreign

corporation

for

U.S.

and

USVI

income

tax

purposes

and,

accordingly,

is generally

subject to

U.S. and

USVI income

tax only

on its income

from sources

within the

U.S. and

USVI or

income

effectively

connected with

the conduct

of a

trade or

business in

those jurisdictions.

Any such

tax paid

in the

U.S. and

USVI

is also

creditable against the Corporation’s

Puerto Rico tax liability, subject

to certain conditions and limitations.

Insurance Operations Regulation

As a financial holding

company under the Bank

Holding Company Act, we

are permitted to engage

in a broader range of

activities,

including insurance activities, that are permitted to bank holding companies.

FirstBank Insurance Agency

is registered as an

insurance agency with

the Insurance Commissioner of

Puerto Rico and is subject

regulations issued by

the Insurance Commissioner

of Puerto Rico and

the Division of

Banking, Insurance and

Financial Regulation in

the USVI

relating to,

among other

things, the

licensing of

employees and

sales and

solicitation and

advertising practices,

and by

the

Federal Reserve

Board as

to certain

consumer protection

provisions mandated

by the

Gramm-Leach-Bliley Act

and its

implementing

regulations.

Mortgage Banking Operations

addition

FDIC

and

CFPB

regulations,

FirstBank

subject

the

rules

and

regulations

the

FHA,

VA,

FNMA,

FHLMC,

GNMA, and

the U.S.

Department of

Housing and

Urban Development

(“HUD”)

with respect

to originating,

processing,

selling and

servicing mortgage

loans and the

issuance and

sale of MBS.

Those rules

and regulations, among

other things, prohibit

discrimination

and

establish

underwriting

guidelines

that

include

provisions

for

inspections

and

appraisals,

require

credit

reports

prospective

borrowers

and

fix

maximum

loan

amounts,

and,

with

respect

loans,

fix

maximum

interest

rates.

Moreover,

lenders

such

FirstBank are required

annually to submit

audited financial statements

to the FHA, VA,

FNMA, FHLMC, GNMA and

HUD and each

regulatory entity

has its

own financial

requirements. FirstBank’s

affairs are

also subject

to supervision

and examination

by the

FHA,

VA,

FNMA,

FHLMC,

GNMA

and

HUD

all

times

assure

compliance

with

applicable

regulations,

policies

and

procedures.

Mortgage origination activities are subject

to, among other requirements, the Equal

Credit Opportunity Act, TILA and

the RESPA

and

the

regulations

promulgated

thereunder

that,

among

other

things,

prohibit

discrimination

and

require

the

disclosure

of certain

basic

information to

mortgagors concerning

credit terms

and settlement

costs. FirstBank

is licensed

by the

Commissioner under

the Puerto

Rico

Mortgage

Banking

Law,

and,

such,

subject

regulation

the

Commissioner,

with

respect

to,

among

other

things,

licensing requirements and the establishment of maximum origination

fees on certain types of mortgage loan products.

WEBSITE ACCESS TO REPORT

The Corporation

makes available

annual reports

on Form

10-K, quarterly

reports on Form

10-Q, and

current reports

on Form

8-K,

and amendments to

those reports, and proxy

statements on Schedule 14A,

filed or furnished pursuant

to Sections 13(a), 14(a)

or 15(d)

of the Exchange

Act, free of

charge on or

through its internet

website at www.1firstbank.com

(under “Investor Relations”)

or directly

through

the

Corporation’s

investor

relations

website,

fbpinvestor.com,

soon

reasonably

practicable

after

the

Corporation

electronically

files

such

material

with,

furnishes

to,

the

SEC.

The

SEC

maintains

website

that

contains

reports,

proxy

and

information statements, and other information regarding issuers that file electronically

with the SEC at www.sec.gov.

The

Corporation

also

makes

available

its

Corporate

Governance

Guidelines

and

Principles,

the

charters

the

Audit,

Asset/Liability,

Compensation

and

Benefits,

Credit,

Risk,

Trust,

and

Corporate

Governance

and

Nominating

Committees

and

the

documents listed below,

free of charge on or through its internet website at www.fbpinvestor.com

(under Corporate Governance):

•

Code of Ethics for CEO and Senior Financial Officers (the “Code of

Ethics”)

•

Code of Ethical Conduct applicable to all employees

•

Independence Principles for Directors

•

Corporate Sustainability/ESG Reports

•

Sustainability Policy

The Corporate

Governance Guidelines and

Principles and the

aforementioned charters

and documents may

also be obtained

free of

charge

sending

a written

request

Mrs. Sara

Alvarez Cabrero

Executive

Vice

President,

General

Counsel

and

Secretary

of the

Board, PO Box 9146, San Juan, Puerto Rico 00908.

Website addresses

referenced in this Form 10-K

are provided as textual references

and for convenience only,

and the content on the

referenced

websites does

not constitute

a part

of this

Form

10-K

or any

other report

or document

that the

Corporation

files with

furnishes to the SEC.

Item 1A.

Risk Factors

Below

is a

discussion

about material

risks

and

uncertainties that

could

impact

the Corporation’s

businesses,

results

of operations

and financial condition,

including by causing

the Corporation’s

actual results to differ

materially from those

projected in any forward-

looking statements. Other risks

and uncertainties, including those

not currently known to the

Corporation or its management and

those

that

the

Corporation

its management

currently

deems

immaterial,

could

also

materially

adversely

affect

the Corporation

future periods. Thus, the following

should not be considered a complete

discussion of all of the risks and

uncertainties the Corporation

may face. See the discussion under “Forward-Looking Statements,” in

this Form 10-K.

RISKS RELATING TO

THE BUSINESS ENVIRONMENT AND OUR INDUSTRY

The effect

of the

current interest

rate environment

or changes

in interest

rates or

the level

or composition

of the

Corporation’s

assets

and

liabilities

may

impact

the

Corporation’s

net

interest

income,

net

interest

margin,

loan

originations,

deposit

attrition,

overall results of operations, and its liquidity position.

Net interest

income is

the difference

between the

amounts received

by us

on our

interest-earning assets

and the

interest paid

by us

our

interest-bearing

liabilities.

Differences

the

re-pricing

structure

our

assets

and

liabilities

may

result

changes

our

profits when

interest rates

change. For

instance, higher

interest rates

increase the

cost of

mortgage and

other loans

to consumers

and

businesses and

may

reduce

future demand

for such

loans, which

may

negatively

impact our

profits by

reducing

the amount

of loan

interest

income

due

to declines

volume.

Interest

rates

are highly

sensitive

to many

factors

that

are beyond

our

control,

including

general

economic

conditions,

inflationary

trends,

changes

government

spending

and

debt

issuances

and

policies

various

governmental and regulatory agencies, in particular,

the Federal Reserve Board.

Additionally,

basis risk is

the risk of

adverse consequences resulting

from unequal changes

in the difference,

also referred to

as the

“spread” or

basis, between

the rates

for two

or more

different

instruments with

the same

maturity and

occurs when

market rates

for

different financial

instruments or

the indices

used to

price assets and

liabilities change

at different

times or

by different

amounts. For

example, the interest expense

for liability instruments might

not change by the

same amount as interest income

received from loans

investments.

the

extent

that

the

interest

rates

loans

and

borrowings

change

different

rates

and

different

amounts,

the

margin between

our variable rate-based

assets and the cost

of the interest-bearing

liabilities might be

compressed and adversely

affect

net interest income.

Also, changes

in interest

rates may

impact demand

for new

loan originations,

affect the

composition of

the Corporation’s

interest-

earning

assets,

and

may

impact

the

extent

any

re-shifting

between

non-interest-bearing

and

interest-bearing

liabilities.

Further,

changes in interest rates impact the value of our

fixed-rate securities. Any unrealized gains or losses from

these portfolios impact other

comprehensive income, stockholders’

equity,

and the tangible common

equity ratio. Any realized gains

or losses from these

portfolios

impact regulatory capital ratios.

Changes in prepayments may adversely affect net interest income.

Net

interest

income

could

also

affected

prepayments

MBS.

Generally,

when

rates

rise,

prepayments

principal

and

interest

will

decrease,

and

the

duration

MBS

securities

will

increase.

Conversely,

when

rates

fall,

prepayments

principal

and

interest

will

increase,

and

the

duration

mortgage-backed

securities

will

decrease.

Such

acceleration

the

prepayments

MBS

would lower yields on

these securities, as the amortization

of premiums paid upon

the acquisition of these securities

would accelerate.

Conversely,

acceleration in

the prepayments

of MBS

would increase

yields on

securities purchased

at a

discount, as

the accretion

the discount

would

accelerate. Also,

net interest

income

in future

periods might

be affected

by our

investment

in callable

securities

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

The

volatility

the

financial

services

industry,

including

failures

rumored

failures

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

March

and

May

2023,

and

adverse

developments

affecting

other

banks,

resulted

heightened

levels

market

volatility

and

consequently

negatively

impacted

customer

confidence

the

safety

and

soundness

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

financial results,

will depend

on future

developments,

which

are highly

uncertain

and difficult to predict.

the

aftermath

these

bank

failures,

the

banking

agencies

have

increased

regulatory

requirements

and

costs

that

may

impact

capital ratios or the FDIC deposit insurance premium.

For example, in November 2023, the FDIC approved

a final rule to implement a

special

assessment

recover

the

loss

the

DIF

associated

with

protecting

uninsured

depositors

following

the

closure

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 initial invoice

payment date of

June 28, 2024,

and will continue

to collect special

assessments for an

anticipated total of

eight

quarterly

assessment

periods.

The

base

for

the

special

assessment

equal

the

estimated

uninsured

deposits

reported

for

the

December 31, 2022

reporting period, adjusted

to exclude the

first $5 billion

of such amount.

In association with

this final rule,

during

the

fourth

quarter

2023,

the

Corporation

recorded

charge

$6.3

million

the

consolidated

statements

income

part

“FDIC deposit insurance

expenses,” which reflects

the expected total

payment to be

made to the FDIC

as of December

31, 2023. The

FDIC retains

the ability

to cease

collection early,

extend the

special assessment

collection period

beyond the

eight-quarter collection

period,

impose

additional

shortfall

special

assessment

one-time

basis

after

the

receiverships

for

the

two

banks

are

terminated.

Difficult

market

and

general

economic

conditions

have

affected

the

financial

industry

and

could

adversely

affect

the

future.

Given that most of our business is in Puerto Rico and the

U.S. and given the degree of interrelation between

Puerto Rico’s economy

and that

of the

U.S., we

are exposed

to downturns

in the

U.S. economy,

including factors

such as

employment levels

in the

U.S. and

real

estate

valuations.

The

deterioration

these

conditions

has

adversely

affected

the

past

and

the

future

could

adversely

affect

the

credit

performance

mortgage

loans,

and

result

significant

write-downs

asset

values

financial

institutions,

including U.S. government-sponsored entities (“GSEs”)

as well as major commercial banks and investment banks.

In particular, we may face the following

risks:

●

Our ability

to assess the

creditworthiness of

our customers

may be impaired

if the models

and approaches

we use to

select,

manage, and underwrite the loans become less predictive of future behaviors.

●

The

models

used

estimate

losses

inherent

the

credit

exposure,

particularly

those

under

CECL,

require

difficult,

subjective, and

complex judgments,

including forecasts

of economic

conditions and

how these

economic predictions

might

impair

the

ability

the borrowers

repay

their

loans, which

may

no longer

accurately estimated

and

which

may,

turn, impact the reliability of the models.

●

Our

ability

borrow

from

other

financial

institutions

engage

sales

mortgage

loans

third

parties

(including

mortgage

loan

securitization

transactions

with

GSEs

and

repurchase

agreements)

favorable

terms,

all,

could

adversely

affected

further

disruptions

the

capital

credit

markets

other

events,

including

deteriorating

investor

expectations.

●

Competitive dynamics

in the

industry could

change as

a result

of strategic

growth opportunities

in connection

with current

market conditions.

●

Expected

future

regulation

our

industry

may

increase

our

compliance

costs

and

limit

our

ability

pursue

business

opportunities.

●

There may be downward pressure on our stock price.

Any deterioration

of economic

conditions in

the U.S.

and disruptions

in the

financial markets

could adversely

affect our

ability to

access capital,

our business,

financial condition,

and results

of operations.

Unfavorable or

uncertain economic

and market

conditions

have

been

and

could

cause

declines

economic

growth,

business

activity

investor

business

confidence;

limitations

the

availability or

increases in

the cost

of credit

and capital;

increases in inflation

or interest rates;

high unemployment;

natural disasters;

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

Additionally,

the

residential

mortgage

loan

origination

business

impacted

home

values

and

has

historically

been

cyclical,

enjoying periods of strong growth and profitability followed by periods of

shrinking volumes and industry-wide losses. During periods

of rising

interest rates,

including

the series

of interest

rate increases

that have

occurred, the

refinancing

of many

mortgage

products

tends to decrease as the economic incentives for borrowers to refinance their

existing mortgage loans are reduced.

Any sustained

period of

increased delinquencies,

foreclosures, or

losses could

adversely affect

our ability

to sell

loans, the

prices

we receive

for loans,

the values

of mortgage

loans held

for sale,

or residual

interests in

securitizations, which

could adversely

affect

our

financial

condition

and

results

operations.

addition,

any

additional

material

decline

real

estate

values

would

further

weaken the loan-to-value

ratios and increase

the possibility of

loss if a

borrower defaults. In

such event, we

will be subject

to the risk

of loss on such real estate arising from borrower defaults to the extent not covered

by third-party credit enhancements.

We operate in a highly

competitive industry and market area.

face

substantial

competition

all

areas

our

operations

from

variety

different

competitors,

including

other

banks,

insurance

companies,

mortgage

banking

companies,

small

loan

companies,

automobile

financing

companies,

leasing

companies,

brokerage

firms

with

retail

operations,

credit

unions,

certain

retailers,

fintech

companies

and

digital

platforms.

The

Corporation’s

ability

compete

effectively

depends

the

relative

performance

its

products,

the

degree

which

the

features

its

products

appeal

customers,

and

the

extent

which

the

Corporation

meets

clients’

needs

and

expectations.

The

Corporation’s

ability

compete also depends on its ability to attract and retain professional and other

personnel, and on its reputation.

The

Corporation

encounters

intense competition

in attracting

and

retaining

deposits

and

its consumer

and

commercial

lending

activities. The

Corporation

competes for

loans with

other financial

institutions.

The Corporation’s

ability to

originate loans

depends

primarily on the rates and

fees charged and the

service it provides to its borrowers

in making prompt credit

decisions. There can be

assurance that

in the

future the

Corporation will

be able

to increase

its deposit

base, originate

loans in

the manner

or on

the terms

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

The Corporation’s

credit quality and

the value of the

portfolio of Puerto

Rico government securities

has been, and

in the future

may

be,

adversely

affected

Puerto

Rico’s

economic

condition,

and

may

affected

actions

taken

the

Puerto

Rico

government or the PROMESA oversight board to address the ongoing fiscal and

economic challenges in Puerto Rico.

A significant

portion

of the

Corporation’s

business activities

and credit

exposure

is concentrated

in the

Commonwealth of

Puerto

Rico, which has undergone significant economic challenges

and debt reforms over the last decade.

June

15,

2023,

the

Puerto

Rico

Planning

Board

(“PRPB”)

presented

the

updated

Economic

Report

the

Governor,

which

provides

analysis

Puerto

Rico’s

economy

during

fiscal

year

2022

and

short-term

forecast

for

fiscal

years

2023

and

2024.

According

the

PRPB,

Puerto

Rico’s

real

gross

national

product

(“GNP”)

expanded

3.7%

fiscal

year

2022,

which

was

the

highest annual real GNP

growth registered in Puerto

Rico since fiscal year 1999.

The growth was primarily driven

by a sharp increase

in personal

consumption

expenditures reflecting

an increase

of approximately

8.5% when

compared

to fiscal

year

2021,

increase

exports of 4.8%, and growth in fixed capital investments of 12.6%,

partially offset by an increase in imports of 10.3%.

The

2023

Fiscal

Plan

prioritizes

resource

allocation

across

three

major

pillars:

(i)

entrenching

legacy

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

improve

availability,

reliability

and

affordability

energy,

education

reform

expand

opportunity

and

prepare

the

workforce

compete

for

jobs

the

future,

and

infrastructure

reform

aimed

improving

the

efficiency

the

economy

and

facilitating

investment.

The

2023

Fiscal

Plan

projects

that

these

reforms,

implemented

successfully,

will contribute

0.75% in

GNP growth

by fiscal

year

2026.

Additionally,

the 2023

Fiscal Plan

provides

roadmap

for

tax

reform

directed

towards

establishing

tax

regime

that

competitive

for

investors

and

equitable

for

individuals.

The

2023

Fiscal

Plan

notes

that

Puerto

Rico

has

had

strong

recovery

the

aftermath

the

COVID-19

pandemic

crisis

with

labor

participation

trending

positively

and

unemployment

historically

low

levels.

However,

recognizes

that

such

recovery

has

been

primarily

fueled

the

unprecedented

influx

federal

funds

which

have

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

disaster

relief

funding.

Also,

the

2023

Fiscal

Plan

projects

the

$9.3

billion

remaining

COVID-19

relief

funds

deployed

fiscal

years

2023

through

2025,

compared

$4.5

billion

projected

the

fiscal

plan.

Additionally,

the

2023

Fiscal

Plan

continues

account

for

$2.3

billion

federal

funds

Puerto

Rico

from

the

Bipartisan

Infrastructure

Law

directed

towards improving Puerto Rico’s

infrastructure over fiscal years 2022 through 2026.

As of December

31, 2023, the

Corporation had $297.9

million of direct

exposure to the

Puerto Rico government,

its municipalities

and public corporations. As of December 31, 2023, approximately

$189.0 million of the exposure consisted of loans and obligations

municipalities in Puerto

Rico that are supported

by assigned property

tax revenues and

for which, in most

cases, the good

faith, credit

and unlimited taxing

power of the applicable

municipality have been

pledged to their

repayment, and $59.4

million consisted of

loans

and obligations which

are supported by one

or more specific sources

of municipal revenues.

The municipalities are

required by law

levy

special

property

taxes

such

amounts

are

required

for

the

payment

all

their

respective

general

obligation

bonds

and

notes.

addition

municipalities,

the

total

direct

exposure

also

included

$8.9

million

loans

affiliate

PREPA,

$37.4

million in loans to

an agency of the

Puerto Rico government,

and obligations of the

Puerto Rico government, specifically

a residential

pass-through

MBS

issued

the

Housing

Finance

Authority

(“PRHFA”),

amortized

cost

$3.2

million

part

its

available-for-sale debt securities portfolio (fair value of $1.4 million as of

December 31, 2023).

addition,

December

31,

2023,

the

Corporation

had

$77.7

million

exposure

residential

mortgage

loans

that

are

guaranteed

by the

PRHFA.

Residential

mortgage

loans guaranteed

by the

PRHFA

are

secured

the underlying

properties

and

the

guarantees serve to cover

shortfalls in collateral in the event

of a borrower default.

The regulations adopted by

the PRHFA

require the

establishment of

adequate reserves

to guarantee

the solvency of

its mortgage

loans insurance program

As of June

30, 2022,

the most

recent date

as of

which information

is available,

the PRHFA

had a

liability of

approximately $1

million as

an estimate

of the

losses

inherent in the portfolio.

As of December

31, 2023,

the Corporation

had $2.7 billion

of public

sector deposits in

Puerto Rico,

which are

fully collateralized.

Approximately 20% of the

public sector deposits as of December

31, 2023 were from municipalities

and municipal agencies in

Puerto

Rico and 80% were from public

corporations, the Puerto Rico central government

and agencies, and U.S. federal government

agencies

in Puerto Rico.

Instability in economic conditions,

delays in the receipt of

disaster relief funds allocated

to Puerto Rico, and

the potential impact on

asset

values

resulting

from

past

future

natural

disaster

events,

when

added

Puerto

Rico’s

ongoing

fiscal

challenges,

could

materially adversely affect our business, financial condition, liquidity,

results of operations and capital position.

deterioration

economic

conditions

the

U.S.

Virgin

Islands

and

British

Virgin

Islands

could

harm

our

results

operations.

For many years, the

USVI has been experiencing

several fiscal and economic

challenges that have deteriorated

the overall financial

and

economic

conditions

the

area.

However,

May

22,

2023,

the

United

States

Bureau

Economic

Analysis

(the

“BEA”)

released its

estimates of

real gross domestic

product (“GDP”)

for 2021.

According to

the BEA,

the USVI’s

real GDP

increased 2.8%

2021

after

decreasing

1.9%

2020.

The

increase

real

GDP

reflected

increases

exports

and

personal

consumption

expenditures.

These

increases

were

partly

offset

decreases

private

inventory

investment,

private

fixed

investment,

and

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

GDP,

also decreased.

Over the past

three years, the

USVI has been

recovering from the

adverse impact caused

by COVID-19 and

has continued to

make

progress on

its rebuilding

efforts related

to Hurricanes

Irma and

Maria, which

occurred in

2017. According

to data

published by

the

government,

over

$5.0

billion

disaster

recovery

funds

were

disbursed

November

2023

and

$6.2

billion

were

remaining

obligated funds

waiting to

be disbursed.

On the

fiscal front,

revenues have

trended positively

and the

USVI government

successfully

completed the restructuring

of the government

employee retirement system.

Moreover,

labor market trends

remain stable with

payroll

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

December 2022.

Finally, PROMESA

does not apply to

the USVI and, as such,

there is currently no federal

legislation permitting the restructuring

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

the

government

the

USVI

may

enact

legislation

allowing

for

the

restructuring

the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of December 31, 2023,

the Corporation had $90.5 million

in loans to USVI public corporations,

compared to $38.0 million as of

December 31, 2022. As of December 31, 2023, all loans were currently performing

and up to date on principal and interest payments.

We are subject to ESG risks that

could adversely affect our reputation and the market price of our securities.

There

increased

focus

from

certain

government

regulators,

investors,

customers,

business

partners

and

other

stakeholders

concerning ESG matters, and

the expectations related to

ESG matters are rapidly

evolving. The increased focus

by investors and other

stakeholders

the

ESG

practices

publicly

traded

companies,

us,

has

included

may

the

future

include

expanding

mandatory

and

voluntary

reporting,

diligence,

and

disclosure

topics

such

climate

change,

human

capital,

labor

and

risk

oversight,

and

could

expand

the

nature,

scope,

and

complexity

matters

that

are

required

control,

assess

and

report.

These

requirements would likely

result in increased ESG-related

compliance costs, which

could result in

increases to our

overall operational

costs. Failure

adapt

comply

with

regulatory

requirements

investor

stakeholder

expectations

and

standards

could

negatively impact our reputation, ability to do business with certain partners,

and our stock price.

For

example,

may

exposed

negative

publicity

based

the

identity

and

activities

those

whom

lend

and

with

which we

otherwise do

business and

the public’s

view of

the approach

and performance

of our

customers and

business partners

with

respect

to ESG matters.

Any

such

negative

publicity

could

arise

from

adverse

news

coverage

traditional

media

and

could

also

spread

through

the

use

social

media

platforms.

The

Corporation’s

relationships

and

reputation

with

its

existing

and

prospective

customers

and

third

parties

with

which

business

could

damaged

were

become

the

subject

any

such

negative

publicity. This,

in turn,

could have

an adverse

effect

our ability

attract

and retain

customers

and

employees

and could

have

negative impact

on our

business, financial

condition and

results of

operations.

In addition,

we could

be criticized

by ESG

detractors

for the scope

or nature of

our ESG initiatives

or policies or

for any revisions

to these policies.

could also be

subjected to

negative

responses by

governmental actors (such

as anti-ESG legislation

or retaliatory legislative

treatment) or consumers

(such as boycotts

negative publicity campaigns) that could adversely affect our reputation,

results of operations and financial condition.

Our results

of operations

could be

adversely affected

by natural

disasters,

public health

crises, political

crises, negative

global

climate patterns or other catastrophic events.

Natural disasters,

whose nature

and severity

may be

impacted by

climate change,

such as

hurricanes,

floods, extreme

cold events

and other

adverse weather

conditions; public

health crises;

political crises,

such as

terrorist

attacks, war,

labor unrest,

other political

instability,

trade policies and

sanctions, including the repercussions

of the ongoing conflict

in Ukraine, the conflict

between Israel and

Hamas,

and

the

possible

expansion

such

conflicts

surrounding

areas

and

potential

geopolitical

consequences;

negative

global

climate

patterns,

especially

water

stressed

regions;

other

catastrophic

events,

such

fires

other

disasters

occurring

our

locations, whether

occurring in

Puerto Rico,

the U.S., or

internationally,

could cause

a significant

adverse effect

on the economy

and

disrupt

our

operations.

Certain

areas

which

our

business

concentrated,

including

Puerto

Rico

and

the

USVI,

are

particularly

susceptible

earthquakes,

hurricanes,

and

major

storms.

Further,

climate

change

may

increase

both

the

frequency

and

severity

extreme weather conditions and natural

disasters, which may affect our

business operations, either in a particular region

or globally,

well as the activities

of our customers.

The Corporation

is also not able

to predict the

positive or negative

effects that future

events or

changes to the U.S. or global economy,

financial markets, or regulatory and business environment could have on our operations.

Climate

change,

and

efforts

mitigate

its

long-term

effects,

may

materially

adversely

affect

the

Corporation's

business

and

results of operations.

Concerns over

the long-term effects

of climate change

have led and

will continue to

lead to governmental

efforts around

the world

mitigate

those

impacts.

Consumers

and

businesses

also

may

voluntarily

change

their behavior

as a

result

these

concerns.

The

Corporation

and

its

customers

will

need

respond

new

laws

and

regulations

well

consumer

and

business

preferences

resulting

from

climate

change

concerns.

The

Corporation

and

its

customers

may

face

cost

increases,

asset

value

reductions

and

operating process

changes. The

impact on

our customers

will likely

vary depending

on their

specific attributes,

including reliance

our

role in

fossil fuel

activities. Among

the impacts

to the

Corporation,

we could

face reductions

in creditworthiness

on the

part

some customers

or in

the value

of assets

securing loans.

The Corporation’s

efforts to

take these

risks into

account in

making lending

and

other

decisions,

including

increasing

our

business

with

climate-responsible

companies,

may

not

effective

protecting

the

Corporation from the negative impact of new laws and regulations or changes in

consumer or business behavior.

Deterioration in collateral values may result in additional losses.

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

our investments.

had a

commercial and

construction loan

portfolio held

for investment

in the

amount of

$5.7 billion

as of

December 31,

2023.

Due to

their nature,

these loans

entail a

higher credit

risk than

consumer and

residential mortgage

loans, since

they are larger

in size,

concentrate

risk

single

borrower

and

are

generally

sensitive

economic

downturns.

Furthermore,

the

case

slowdown

in the

real estate

market,

it may

be difficult

to dispose

of the

properties

securing

these loans

upon any

foreclosure

of the

properties. We

may incur losses over the near term, either because of continued

deterioration in the quality of loans or because of sales

problem

loans,

which

would

likely

accelerate

the

recognition

losses. Any

such

losses

could

adversely

impact

our

overall

financial performance and results of operations.

Deterioration

the

value

real

estate

collateral

securing

our

construction

and

commercial

loan

portfolios,

whether

located

Puerto Rico

or elsewhere,

would result

in increased

credit losses.

Whether the

collateral that

underlies our

loans is

located in

Puerto

Rico, the USVI,

the BVI, or the

U.S. mainland, the performance

of our loan portfolio

and the collateral value

backing the transactions

are

dependent

upon

the

performance

of,

and

conditions

within,

each

specific

real

estate

market.

December

31,

2023,

$2.5

billion, or

21% of

the total

loan portfolio

held for

investment, of

our commercial

and construction

loan portfolio

held for

investment

consisted of commercial mortgage and construction loans

of which $1.8 billion was in the Puerto Rico region.

measure credit

losses for

collateral dependent

loans based

on the

fair value

of the

collateral, which

is generally

obtained from

appraisals, adjusted

for undiscounted

selling costs

as appropriate.

Updated appraisals

are obtained

when we

determine that

loans are

collateral

dependent

and

are

updated

annually

thereafter.

addition,

appraisals

are

also

obtained

for

certain

residential

mortgage

loans on a spot

basis based on specific

characteristics, such as delinquency

levels, and age of

the appraisal. The appraised

value of the

collateral may decrease, or we may

not be able to recover collateral at

its appraised value. A significant decline

in collateral valuations

for

collateral

dependent

loans

has

required

and,

the

future,

may

require,

increases

our

credit

loss

expense

loans. Any

such

increase would have an adverse effect on our future financial condition

and results of operations.

Labor shortages and constraints in the supply chain could adversely affect

our clients’ operations as well as our operations.

Many

sectors in

Puerto

Rico, the

United

States, the

Virgin

Islands and

around

the world

are experiencing

a shortage

of workers.

Many of our commercial clients have

been impacted by this shortage along with

disruptions and constraints in the supply

chain, which

could

adversely

impact

their

operations

and

could

lead

reduced

cash

flow

and

difficulty

making

loan

repayments.

The

Corporation’s

industry

has

also

been

affected

the

shortage

workers,

well

increasing

wages

for

entry

level

and

certain

professional roles. This may

lead to open positions remaining

unfilled for longer periods of time,

which may affect the level

of service

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

The failure of other financial institutions could adversely affect

us.

Our ability to engage in

routine financing transactions could

be adversely affected

by future failures of financial

institutions and the

actions and

commercial soundness

of other

financial institutions.

Financial institutions

are interrelated

as a result

of trading,

clearing,

counterparty

and

other relationships.

have

exposure

to different

industries

and

counterparties

and

routinely

execute

transactions

with counterparties

in the financial

services industry,

including brokers

and dealers,

commercial banks,

investment banks,

investment

companies and other

institutional clients. In

certain of these transactions,

we are required to

post collateral to secure

the obligations to

the

counterparties.

In the

event

a bankruptcy

insolvency

proceeding

involving

one of

such counterparties,

may

experience

delays in recovering

the assets posted as

collateral, or we

may incur a

loss to the extent

that the counterparty

was holding collateral

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

In addition, many of these transactions

expose us to credit risk in

the event of a default by our

counterparty or client. The credit

risk

may be exacerbated when

the collateral held by us cannot

be realized or is liquidated

at prices not sufficient

to recover the full amount

of the loan

or derivative

exposure due to

us. Any losses

resulting from

our routine funding

transactions may

materially and adversely

affect our financial condition and results of operations.

RISKS RELATING TO

THE CORPORATION’S

BUSINESS

Certain funding sources may not be available to us, and our funding sources may

prove insufficient and/or costly to replace.

FirstBank

relies

primarily

customer

deposits,

the

issuance

brokered

CDs,

and

advances

from

the

FHLB

New

York

maintain its lending

activities and to replace

certain maturing liabilities.

As of December 31,

2023, we had $783.3

million in brokered

CDs outstanding, representing approximately 5% of

our total deposits. Approximately $700.9 million, or 89%

in brokered CDs mature

over the twelve months

ending December 31, 2024, and

the average remaining term to

maturity of the brokered CDs outstanding

as of

December 31,

2023 was

approximately 11

months.

None of

these brokered

CDs are

callable at

the Corporation’s

option. In

addition,

the Corporation had $500.0 million

of long-term FHLB advances outstanding

as of December 31, 2023, which mature

over one to five

years.

Although FirstBank has historically been

able to replace maturing deposits and

advances, we may not be able

to replace these funds

in the future if our financial condition or general market

conditions change. If we are unable to maintain access to funding

sources, our

results of operations and liquidity would be adversely affected.

Alternate

sources

funding

may

carry

higher

costs

than

sources

currently

utilized.

are

required

rely

heavily

expensive funding sources, profitability would be adversely affected.

may

determine

seek

debt

financing

the

future

achieve

our

long-term

business

objectives.

Additional

borrowings,

sought, may not be available to us, or if available, may

not be on acceptable terms. The availability of additional

financing will depend

variety

factors,

such

market

conditions,

the

general

availability

credit,

our

credit

ratings

and

our

credit

capacity.

addition,

FirstBank may seek to sell loans as an additional source of liquidity.

If additional financing sources are unavailable or are not

available on acceptable terms, our profitability and future prospects could

be adversely affected.

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

funds.

The

Corporation’s

ability to

access new

non-deposit

sources of

funding

could be

adversely

affected

by downgrades

in our

credit

ratings. The Corporation’s

liquidity is to a

certain extent contingent upon

its ability to obtain

external sources of funding

to finance its

operations. The

Corporation’s

current credit

ratings and

any downgrades

in such

credit ratings

can hinder

the Corporation’s

access to

new

forms

external

funding

and/or

cause

external

funding

expensive,

which

could

turn

adversely

affect

results

operations.

We depend on

cash dividends from FirstBank to meet our cash obligations.

As a holding company,

dividends from FirstBank, our banking subsidiary,

have provided a substantial portion of our cash flow used

service

the

interest

payments

our

TRuPs

and

other

obligations.

FirstBank

limited

law

its

ability

make

dividend

payments

and other

distributions

to us

based on

its earnings

and

capital position.

A failure

FirstBank

to generate

sufficient

cash

flow to make dividend payments to us may have a negative impact on our results of

operations and financial condition.

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

operations.

Although non-performing

assets decreased by

$3.3 million to $125.9

million as of December

31, 2023, or 3%,

from $129.2 million

as of

December

31,

2022,

we continue

have

relevant

amount

nonaccrual

loans.

are

unable

effectively

maintain

the

quality of our loan portfolio, our financial condition and results of operations

may be materially and adversely affected.

Our

ACL

may

not

adequate

cover

actual

losses,

and

may

required

materially

increase

our

ACL,

which

may

adversely affect our capital ratios, financial condition and results of

operations.

We are subject, among

other things, to the risk of loss from loan defaults and

foreclosures with respect to the loans we originate and

purchase. We

recognize periodic

credit loss

expenses on

loans, which

leads to

reductions in

our income

from operations,

in order

maintain

our ACL

on loans

at a

level that

our management

deems to

be appropriate

based upon

an assessment

of the

quality

of the

loan and lease portfolios.

Management may fail to

accurately estimate the level of

credit losses or may

have to increase our

credit loss

expense

loans in

the

future as

result

new

information

regarding

existing

loans,

future

increases

nonaccrual

loans

beyond

what

was

forecasted,

foreclosure

actions

and

loan

modifications,

changes

current

and

expected

economic

and

other

conditions

affecting

borrowers

for

other

reasons

beyond

our

control.

addition,

the

bank

regulatory

agencies

periodically

review

the

adequacy

our

ACL

loans

and

may

require

increase

the

credit

loss

expense

loans

the

recognition

additional

classified loans and loan charge-offs, based on

judgments that differ from those of management.

The level

of the

ACL reflects

management’s

estimates based

upon various

assumptions and

judgments as

to specific

credit risks;

evaluation of

industry concentrations;

loan loss

experience; current

loan portfolio

quality; present

economic, political

and regulatory

conditions;

unidentified

losses inherent

in the

current

loan portfolio

and reasonable

and supportable

forecasts. The

determination

the

appropriate

level

the

ACL

loans

inherently

involves

high

degree

subjectivity

and

requires

management

make

significant estimates and judgments

regarding current credit risks

and future trends, all

of which may undergo

material changes. If our

estimates

prove

incorrect,

our

ACL

loans

may

not

sufficient

cover

losses

our

loan

portfolio

and

our

credit

loss

expense on loans could increase substantially.

In addition, any increases in our credit loss expense on

loans or any loan losses in excess of our ACL on loans could have a material

adverse effect on our future capital ratios, financial condition

and results of operations.

The Corporation’s force-placed

insurance policies could be disputed by the customer.

The Corporation

maintains force-placed

insurance policies

that have

been put

into place

when a

borrower’s

insurance policy

on a

property has been canceled,

lapsed or was deemed

insufficient and the

borrower did not

secure a replacement policy.

A borrower may

make a

claim against

the Corporation

under such

force-placed

insurance policy,

and the

failure of

the Corporation

to resolve

such a

claim

the

borrower’s

satisfaction

may

result

dispute

between

the

borrower

and

the

Corporation,

which

not

adequately

resolved, could have an adverse effect on the Corporation.

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

connection

with

the

sale

and

securitization

loans,

are

required

make

variety

customary

representations

and

warranties relating

to the

loans sold

or securitized.

Our obligations

with respect

to these

representations and

warranties are

generally

outstanding

for

the

life

the

loan,

and

relate

to,

among

other

things,

the

following:

(i)

compliance

with

laws

and

regulations;

(ii)

underwriting

standards;

(iii)

the

accuracy

information

the

loan

documents

and

loan

files;

and

(iv)

the

characteristics

and

enforceability of the loan.

A loan that

does not comply

with the representations

and warranties made

may take longer

to sell, may impact

our ability to obtain

third-party

financing

for

the

loan,

and

may

not

saleable

may

saleable

only

significant

discount.

such a

loan

sold

before

detect

non-compliance,

may

obligated

to repurchase

the

loan

and

bear

any

associated

loss directly,

may

obligated

indemnify

the purchaser

against

any

loss,

either

which

could

reduce

our cash

available

for

operations

and

liquidity.

Management

believes

that

it has

established

controls

ensure

that

loans

are

originated

accordance

with

the

secondary

market’s

requirements, but certain employees may make mistakes or may deliberately

violate our lending policies.

Our controls and procedures

may fail or be circumvented,

our risk management policies and

procedures may be inadequate

and

operational risks could adversely affect our consolidated

results of operations.

may fail to

identify and manage

risks related to a

variety of aspects

of our business, including,

but not limited

to, liquidity risk;

interest rate

risk; market

risk; credit

risk; operational

risk; legal,

regulatory and

compliance risk;

reputational risk;

model risk;

capital

risk;

strategic

risk;

and

information

technology

and cybersecurity

risk.

have

adopted

and

periodically

improve

various

controls,

procedures,

policies and

systems to

monitor

and

manage risk.

Any improvements

to our

controls,

procedures,

policies

and

systems,

however,

may not

be adequate

to identify

and manage

the risks in

our various

businesses. If

our risk

framework is

ineffective,

either

because it fails to

keep pace with changes

in the financial markets

or our businesses or

for other reasons,

we could incur losses,

suffer

reputational damage, or find ourselves out of compliance with applicable

regulatory mandates or expectations.

We may also be

subject to disruptions from external events, such as natural disasters and

cyber-attacks, which could cause delays or

disruptions

operational

functions,

including

information

processing

and

financial

market

settlement

functions.

addition,

our

customers,

vendors

and

counterparties

could

suffer

from

such

events.

Should

these

events

affect

us,

the

customers,

vendors

counterparties with

which we

conduct business,

our consolidated

results of

operations could

be negatively

affected. When

we record

balance

sheet

reserves

for

probable

loss

contingencies

operational

losses,

may

unable

accurately

estimate

our

potential

exposure,

and

any

reserves

establish

cover

operational

losses

may

not

sufficient

cover

our

actual

financial

exposure, which

may have

a material

impact on

our consolidated

results of

operations or

financial condition

for the

periods in

which

we recognize the losses.

Our failure to attract and retain a qualified workforce could harm our overall business

and results of operations.

The Corporation’s

success depends,

in large

part, on its

ability to attract

and retain

skilled, experienced personnel.

Competition for

qualified

candidates

the

activities

and

markets

that

the

Corporation

and

FirstBank

serves

intense,

and

while

the

Corporation

invests significantly

in the training

and development of

its employees,

it may not

be able to

hire people or

to retain them.

In addition,

high inflation

has impacted

both cost

structure and

employee demand

for wage

growth, which

may lead

to sustained

higher turnover

rates.

the

Corporation

unable

retain

its

most

qualified

employees,

its

performance

and

competitive

positioning

could

materially adversely affected.

Our businesses may be adversely affected by litigation.

have, in

the past,

been party

to claims

and legal

actions by

our customers,

or subject

to regulatory

supervisory actions

by the

government on

behalf of

customers, relating

to our

performance of

fiduciary or

contractual responsibilities.

In the

past, we

have also

been

subject

securities

class

action

litigation

our

shareholders

and

have

also

faced

employment

lawsuits

and

other

legal

claims. In

any future

claims or

actions, demands

for substantial

monetary damages

may be

asserted against

us, resulting

in financial

liability

adverse

effect

our

reputation

among

investors

customer

demand

for

our

products

and

services.

securities

class

action

suit

against

the

future

could

result

substantial

costs,

potential

liabilities

and

the

diversion

management’s

attention

and

resources.

may

unable

accurately

estimate

our

exposure

litigation

risk

when

record

balance

sheet

reserves for probable loss contingencies.

As a result, reserves we establish to

cover any settlements or judgments may

not be sufficient

cover

our

actual

financial

exposure,

which

has

occurred

the

past

and

may

occur

the

future,

resulting

material

adverse

impact on our consolidated results of operations or financial condition.

the

ordinary

course

our

business,

are

also

subject

various

regulatory,

governmental

and

law

enforcement

inquiries,

investigations and

subpoenas. These

may be

directed generally

to participants

in the

businesses in

which we

are involved

or may

specifically directed

at us. In

regulatory enforcement

matters, claims for

disgorgement, the

imposition of penalties

and the imposition

of other remedial sanctions are possible.

The resolution

of legal

actions or

regulatory matters,

when unfavorable,

has had,

and could

in the

future have,

a material

adverse

effect on our consolidated results of operations for

the quarter in which such actions or matters are resolved or a reserve is established.

Our businesses may be negatively affected by adverse publicity or

other reputational harm.

Our relationships

with many of

our customers

are predicated upon

our reputation

as a fiduciary

and a service

provider that adheres

the

highest

standards

ethics,

service

quality

and

regulatory

compliance.

Adverse

publicity,

regulatory

actions,

litigation,

operational failures, the failure to meet customer expectations and other

issues with respect to one or more of our businesses, including

FirstBank as our banking

subsidiary, could

materially and adversely affect

our reputation, or our ability

to attract and retain customers

or obtain

sources of

funding for

the same

or other

businesses. Preserving

and enhancing

our reputation

also depends

on maintaining

systems and procedures that

address known risks and regulatory

requirements, as well as our

ability to identify and mitigate

additional

risks

that

arise

due

changes

our

businesses,

the

market

places

which

operate,

the

regulatory

environment

and

customer

expectations.

If we

fail to

promptly address

matters that

bear on

our reputation,

our reputation

may be

materially adversely

affected

and our business may suffer.

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

our operating results.

If our goodwill or other intangible assets become impaired, we may be

required to record a significant charge to earnings.

Goodwill is

tested for

impairment on

an annual

basis, and

more frequently

if events

or circumstances

lead management

to believe

the values of

goodwill may

be impaired.

Other intangible assets

are amortized

over the projected

useful lives of

the related intangible

asset,

generally

straight-line

basis,

and

these

assets

are

reviewed

periodically

for

impairment

when

events

changes

circumstances

indicate

that

the

fair

value

may

not

exceed

their

carrying

amount.

Factors

that

may

considered

change

circumstances

indicating

that

the

carrying

value

the

goodwill

amortizable

intangible

assets

may

not

recoverable

includes

reduced future

cash flow estimates,

decreases in the

current market

price of

our common

shares, negative

information concerning

the

terminal value of similarly situated insured depository institutions, and

slower growth rates in the industry.

The goodwill

annual impairment

evaluation process

includes a

qualitative assessment

of events

and circumstances

that may

affect

each relevant

reporting unit's

fair value

to determine

whether it

was more

likely than

not that the

fair value

of any

reporting unit

was

less than its carrying amount, including

goodwill. If the result of the

qualitative assessment indicates that

it is more likely than not

that

the carrying value

of goodwill exceeds

its fair value,

a quantitative analysis is

made to determine

the amount of goodwill

impairment.

Analyzing

goodwill

includes

consideration

various

factors

that

continue

rapidly

evolve

and

for

which

significant

uncertainty

remains. Weakening

in the economic environment, which could in turn cause a decline

in the performance of the reporting units, could

cause the fair value

of one or more

of the reporting units

to fall below their

carrying value, resulting

in a goodwill impairment

charge.

Actual

values

may

differ

significantly

from

this

assessment.

Such

differences

could

result

future

impairment

goodwill

that

would,

turn,

negatively

impact

our

results

operations

and

the

reporting

unit

which

the

goodwill

relates.

During

the

fourth

quarter of

2023, management

performed a

qualitative analysis

of the

carrying amount

of each

relevant reporting

unit’s

goodwill and

concluded

that

more-likely-than-not

that

the

fair

value

the

reporting

units

exceeded

their

carrying

value.

Therefore,

quantitative analysis was required.

As of

December 31,

2023, the

book value

of our

goodwill was

$38.6 million,

which was

recorded at

FirstBank.

If an

impairment

determination

made

future

reporting

period,

our

earnings

and

book

value

goodwill

will

reduced

the

amount

the

impairment. If an

impairment loss is

recorded, it will

have little or

no impact on

the tangible book

value of our

common stock, or

our

regulatory capital

levels, but such

an impairment

loss could significantly

reduce FirstBank’s

earnings and

thereby restrict FirstBank’s

ability to make dividend payments to us without prior

regulatory approval, because Federal Reserve policy states that

the bank holding

company dividends should be paid from current earnings.

Recognition of deferred tax assets is dependent upon the generation of future taxable

income by the Bank.

December

31,

2023,

the

Corporation

had

deferred

tax

asset

$150.1

million

(net

valuation

allowance

$139.2

million, including

a valuation

allowance of

$111.4

million against

the deferred

tax assets

of FirstBank).

Under the

PR Tax

Code, the

Corporation

and its

subsidiaries, including

FirstBank, are

treated as

separate taxable

entities and

are not

entitled to

file consolidated

tax returns.

Accordingly,

in order

to obtain

a tax

benefit from

a NOL,

a particular

subsidiary must

be able

to demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

Pursuant

the

PR Tax

Code,

the

carry-forward

period

for

NOLs

incurred

during

taxable

years

that

commenced

after

December

31,

2004

and

ended

before

January

2013

years;

for

NOLs

incurred

during

taxable years

commencing

after December

31,

2012, the

carryover period

is 10

years.

Accounting

for income

taxes

requires

that

companies

assess

whether

valuation

allowance

should

recorded

against

their

deferred

tax

asset

based

assessment of

the amount

of the

deferred tax

asset that

is more

likely than

not to

be realized.

Due to

significant estimates

utilized in

determining the valuation allowance

and the potential for changes

in facts and circumstances in

the future, the Corporation may

not be

able to reverse the remaining valuation allowance or may need to increase

its current deferred tax asset valuation allowance.

The Corporation’s

judgments regarding tax accounting

policies and the resolution of

tax disputes may impact the

Corporation’s

earnings and cash

flow, and

changes in the tax

laws of multiple

jurisdictions can materially

affect our operations,

tax obligations,

and effective tax rate.

Significant

judgment

required

determining

the

Corporation’s

effective

tax

rate

and

evaluating

its

tax

positions.

The

Corporation

provides

for

uncertain

tax

positions

when

such

tax

positions

not

meet

the

recognition

thresholds

measurement

criteria prescribed by applicable generally accepted accounting principles in

the United States (“GAAP”).

Fluctuations in federal,

state, local, and foreign

taxes or a change

to uncertain tax positions,

including related interest

and penalties,

may impact

the Corporation’s

effective tax

rate. When particular

tax matters arise,

a number

of years may

elapse before such

matters

are audited

and finally

resolved. In

addition,

the Puerto

Rico Department

of Treasury

(“PRTD”),

the U.S.

Internal

Revenue Service

(“IRS”),

and

the

tax

authorities

the

jurisdictions

which

operate

may

challenge

our

tax

positions

and

may

estimate

and

provide

for

potential liabilities

that may

arise out

of tax

audits to

the extent

that uncertain

tax positions

fail to

meet the

recognition

standard under

applicable GAAP.

Unfavorable resolution

of any

tax matter

could increase

the effective

tax rate

and could

result in

material increase in our tax expense. Resolution of a tax issue may require

the use of cash in the year of resolution.

First BanCorp. is subject

to Puerto Rico income

tax on its income

from all sources. FirstBank

is treated as a

foreign corporation for

U.S. and USVI income

tax purposes and is generally

subject to U.S. and

USVI income tax only

on its income from

sources within the

U.S.

and

USVI

income

effectively

connected

with

the

conduct

trade

business

those

regions.

The

USVI

jurisdiction

imposes

income

taxes

based

the

U.S.

Internal

Revenue

Code

under

the

“mirror

system”

established

the

Naval

Service

Appropriations Act of 1922. However,

the USVI jurisdiction also imposes an additional 10% surtax on the USVI tax liability,

if any.

These

tax

laws

are

complex

and

subject

different

interpretations.

must

make

judgments

and

interpretations

about

the

application

these

inherently

complex

tax

laws

when

determining

our

provision

for

income

taxes,

our

deferred

tax

assets

and

liabilities, and

our valuation

allowance. In

addition, legislative

changes, particularly

changes in

tax laws,

could adversely

impact our

results of operations.

Changes in applicable

tax laws in

Puerto Rico, the

U.S., or other

jurisdictions or tax

authorities’ new interpretations

could result

increases in our overall taxes and the Corporation’s

financial condition or results of operations may be adversely impacted.

Our ability to use our NOL carryforwards may be limited.

The Corporation

has U.S.

and USVI

sourced NOL

carryforwards. Section

382 of

the U.S.

Internal Revenue

Code (“Section

382”)

limits the

ability to

utilize U.S.

and USVI

NOLs for income

tax purposes,

respectively,

at such

jurisdictions following

an event

of an

ownership

change. Generally,

an “ownership

change” occurs

when

certain shareholders

increase their

aggregate ownership

by more

than 50

percentage points

over their

lowest ownership

percentage over

a three-year

testing period.

Section 1034.04(u)

of the

PR Tax

Code

is significantly

similar

to Section

382.

However,

Ac No.

60 of

2019 amended

the PR

Tax

Code

to repeal

the corporate

NOL

carryover limitations upon change in control for taxable years beginning

after December 31, 2018.

Upon the occurrence of a Section 382 ownership change, the use of NOLs

attributable to the period prior to the ownership change is

subject

limitations

and

only

portion

the

U.S.

and

USVI

NOLs,

applicable,

may

used

the

Corporation

offset

the

annual

U.S.

and

USVI

taxable

income,

any.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning of Section 382 covering a

comprehensive period, and concluded that

an ownership change, for U.S. and

USVI purposes only,

had

occurred

during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

than

would have incurred in the absence of such limitation.

It is possible that

the utilization of our

U.S. and USVI NOLs

could be further limited

due to future changes

in our stock ownership,

result

either

sales

our

outstanding

issuances

new

that

could

separately

cumulatively

trigger

ownership

change

and,

consequently,

Section

382

limitation.

Any

further

Section

382

limitations

may

result

greater

U.S.

and

USVI tax

liabilities

than

we would

incur

in the

absence

of such

a limitation

and

any

increased liabilities

could

adversely affect

our

earnings and cash

flow.

may be able to

mitigate the adverse

effects associated with

a Section 382

limitation in the U.S.

and USVI

to the extent that we could credit any resulting

additional U.S. and USVI tax liability against our tax liability

in Puerto Rico. However,

our

ability

reduce

our

Puerto

Rico

tax

liability

through

such

credit

deduction

will

depend

our

tax

profile

each

annual

taxable period, which is dependent on various factors.

RISKS RELATING TO

CYBERSECURITY AND TECHNOLOGY

Cyber-attacks,

system risks

and data

protection breaches

to our

computer systems

and networks

or those

of third-party

service

providers could adversely

affect our

ability to conduct

business, manage our

exposure to risk

or expand our

business, result in

the

disclosure

misuse

confidential

proprietary

information,

increase

our

costs

maintain

and

update

our

operational

and

security systems and infrastructure, and present significant reputational, legal

and regulatory costs.

Our

business

highly

dependent

the

security,

controls

and

efficacy

our

infrastructure,

computer

and

data

management

systems,

well

those

our

customers,

suppliers,

and

other

third

parties.

access

our

network,

products

and

services,

our

employees,

customers, suppliers,

and other

third parties,

including downstream

service providers,

the financial

services industry

and

financial

data

aggregators,

with

whom

interact,

whom

rely

who

have

access

our

customers’

personal

account

information, increasingly

use personal mobile

devices or computing

devices that are

outside of our

network and control

environments

and

are

subject

their

own

cybersecurity

risks.

Our

business

relies

effective

access

management

and

the

secure

collection,

processing,

transmission,

storage and

retrieval

of confidential,

proprietary,

personal and

other

information

in our

computer

and data

management systems and networks, and in the computer and data management

systems and networks of third parties.

Information

security

risks

for

financial

institutions

have

significantly

increased

recent

years,

especially

given

the

increasing

sophistication and activities

of organized

computer criminals, hackers,

and terrorists and

our expansion of

online and digital

customer

services to

better meet

our

customer’s

needs.

These threats

may

derive

from fraud

or malice

on the

part of

our employees

or third-

party

providers

may

result

from

human

error

accidental

technological

failure.

These

threats

include

cyber-attacks,

such

computer viruses,

malicious or

destructive code,

phishing attacks,

denial of

service attacks, or

other security

breach tactics

that could

result

the

unauthorized

release,

gathering,

monitoring,

misuse,

loss,

destruction,

theft

confidential,

proprietary,

and

other

information, including

intellectual property,

of ours, our

employees, our customers,

or third parties,

damages to systems,

or otherwise

material

disruption

our

customers’

other

third

parties’

network

access

business

operations,

both

domestically

and

internationally.

While

maintain

Information

Security

Program

that

continuously

monitors

cyber-related

risks

and

ultimately

ensures

protection

for

the

processing,

transmission,

and

storage

of confidential,

proprietary,

and other

information

in our

computer

systems

and networks, as

well as a vendor

management program to

oversee third party

and vendor risks, there

is no guarantee

that we will not

be exposed to

or be affected

by a cybersecurity

incident. For example,

as previously disclosed,

one of our

third-party vendors was

the

victim

security

incident

April

2023

involving

set

data

that

included

some

information

FirstBank’s

mortgage

loan

business. In response

to learning of

the incident, we

promptly launched our

own internal investigation,

which confirmed that

our own

systems

were

not

compromised,

and

any

operational

and

financial

impact

was minimal.

Our

vendor

has

indicated

(and

have

evidence

the

contrary)

that

date

there

evidence

that

there

has

been

any

actual

attempted

misuse

information.

The

Corporation has not incurred any material expenses related to the incident and does

not expect any future impact.

Cyber threats are rapidly

changing, and future attacks or

breaches could lead to

other security breaches of

the networks, systems, or

devices that

our customers

use to

access our

integrated products

and services,

which, in

turn, could

result in

unauthorized disclosure,

release, gathering,

monitoring, misuse,

loss or

destruction of

confidential, proprietary,

and other

information (including

account data

information) or

data security

compromises. As

cyber threats

continue to

evolve, we

may be

required to

expend significant

additional

resources

modify

enhance

our

protective

measures,

investigate,

and

remediate

any

information

security

vulnerabilities

incidents

and

develop

our

capabilities

respond

and

recover.

The

full

extent

particular

cyberattack,

and

the

steps

that

the

Corporation may

need to take

to investigate

such attack, may

not be immediately

clear, and

it could take

considerable additional

time

for

determine

the complete

scope

of information

compromised,

at which

time

the impact

on the

Corporation

and

measures

recover and restore to

a business-as-usual state may

be difficult to assess.

These factors may also

inhibit our ability to provide

full and

reliable information about the cyberattack to our customers, third-party

vendors, regulators, and the public.

A successful penetration or circumvention of our system security,

or the systems of our customers, suppliers, and other third parties,

could cause us serious negative consequences, including significant

operational, reputational, legal, and regulatory costs and concerns.

Any of these

adverse consequences could

adversely impact our

results of operations,

liquidity,

and financial condition.

In addition,

our

insurance

policies

may

not

adequate

compensate

for

the

potential

costs

and

other

losses

arising

from

cyber-attacks,

failures of

information technology

systems, or

security breaches,

and such

insurance policies

may not

be available

to us in

the future

economically

reasonable

terms, or

all.

Insurers

may

also

deny

coverage

as to

any

future

claim.

Any of

these

results

could

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

Our

operational

security

systems

infrastructure,

those

third

parties,

could

fail

breached.

Any

such

future

incidents could

potentially disrupt

our business

and adversely

impact our

results of

operations, liquidity,

and financial

condition,

as well as cause legal or reputational harm.

The potential

for operational

risk exposure

exists throughout our

business and,

as a result

of our

interactions with, and

reliance on,

third

parties,

not

limited

our

own

internal

operational

functions.

Our

operational

and

security

systems

and

infrastructure,

including our computer systems,

data management, and internal

processes, as well as those

of third parties that

perform key aspects of

our

business

operations,

such

data

processing,

information

security,

recording

and

monitoring

transactions,

online

banking

interfaces and services,

internet connections, and

network access are

integral to our

performance. We

rely on our

employees and third

parties in

our day-to-day

and ongoing

operations,

who may,

because of

human error,

misconduct,

malfeasance,

failure, or

breach of

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

Our ability to

implement backup systems

and other safeguards

with respect to

third-party systems is more

limited than with

respect

our

own

systems.

addition,

our

financial,

accounting,

data

processing,

backup,

other

operating

security

systems

and

infrastructure may fail to

operate properly or become disabled,

damaged, or otherwise compromised

as a result of a number

of factors,

including

events that

are wholly

or partially

beyond our

control.

may

need to

take our

systems offline

if they

become infected

with malware or a computer

virus or because of another form of

cyberattack. If backup systems are utilized,

they may not process data

as quickly as our primary

systems and some data might

not have been saved to backup

systems, potentially resulting in a

temporary or

permanent loss of such data.

frequently update

our systems

to support

our operations

and growth

and to

remain compliant

with applicable

laws, rules,

and

regulations. In

addition, we

review and

strengthen our

security systems

in response

to any

cyber incident.

Such strengthening

entails

significant

costs

and

risks

associated

with

implementing

new

systems

and

integrating

them

with

existing

ones,

including

potential

business interruptions and

the risk that this

strengthening may not

be entirely effective.

Implementation and testing

of controls related

our

computer

systems,

security

monitoring,

and

retaining

and

training

personnel

required

operate

our

systems

also

entail

significant costs.

Such operational

risk exposures

could adversely

impact our

operations, liquidity,

and financial

condition, as

well as

cause

reputational

harm.

addition,

may

not

have

adequate

insurance

coverage

compensate

for

losses

from

major

interruption.

must respond

to rapid

technological changes,

and these

changes may

be more

difficult or

expensive than

anticipated.

may also be negatively

affected if we fail

to identify and address

operational risks associated

with the introduction of

or changes to

products and services, or if we fail to respond to emerging technologies that seek to

displace traditional financial services.

most

financial

institutions,

FirstBank

significantly

depends

technology

deliver

its

products

and

other

services

and

otherwise conduct

business. To

remain technologically

competitive and

operationally efficient,

FirstBank invests

in system

upgrades,

new

technological

solutions,

and

other

technology

initiatives.

competitors

introduce

new

products

and

services

embodying

new

technologies,

or if

new industry

standards and

practices emerge,

our existing

product

and service

offerings,

technology and

systems

may become obsolete.

Furthermore, if we fail

to adopt or develop

new technologies or

to adapt our products

and services to emerging

industry standards,

we may

lose current

and future

customers, which

could have

a material

adverse effect

on our

business, financial

condition and

results of

operations. The

financial services

industry is

changing rapidly

and, in

order to

remain competitive,

we must

continue

enhance

and

improve

the

functionality

and

features

our

products,

services

and

technologies.

These

changes

may

more difficult or expensive to implement than we anticipate.

When

launch

new

product

service,

introduce

new

platform

for

the

delivery

distribution

products

services

(including mobile

connectivity and

cloud computing),

or make changes

to an existing

product or service,

we may not

fully appreciate

identify

new operational

risks that

may

arise

from those

changes,

we may

fail

implement

adequate

controls

to mitigate

the

risks

associated

with

those

changes.

Significant

failure

this regard

could

diminish

our ability

operate

our

business or

result

potential

liability

our

customers

and

third

parties,

increased

operating

expenses,

weaker

competitive

standing,

and

significant

reputational, legal and regulatory costs.

Additionally,

some

recent

innovations

may

trend

toward

replacing

traditional

banks

financial

service

providers

rather

than

merely

augmenting

those

services.

For

example,

companies

which

claim

offer

applications

and

services

based

artificial

intelligence

are

beginning

to compete

much

directly

with

traditional

financial

services

companies

areas

involving

personal

advice, including

high-margin services

such as

financial planning

and wealth

management. The

low-cost, high-speed

nature of

these

“robo-advisor” services can

be especially attractive

to younger,

less-affluent clients

and potential clients,

as well as

persons interested

in “self-service” investment

management. Similarly,

inventions based on

blockchain technology

eventually may be

the foundation for

greatly enhancing

transactional security throughout

the banking industry,

but also eventually

may reduce the

need for banks

as secure

deposit-keepers

and

intermediaries.

Any

the

foregoing

consequences

could

materially

and

adversely

affect

our

businesses

and

results of operations.

The Corporation is subject

to stringent and changing

privacy laws, regulations,

and standards as well

as policies, contracts, and

other

obligations

data

privacy

and

security.

Our

failure

comply

with

privacy

laws and

regulations,

well as

other

legal obligations, could have a material adverse effect on our business.

State,

federal,

and

foreign

governments

are

increasingly

enacting

laws

and

regulations

governing

the

collection,

use,

retention,

sharing, transfer,

and security

of personally

identifiable information

and data.

A variety

of federal,

state, local,

and foreign

laws and

regulations,

orders,

rules,

codes,

regulatory

guidance,

and

certain

industry

standards

regarding

privacy,

data

protection,

consumer

protection,

information

security,

and

the

processing

personal

information

and

other

data

apply

our

business.

State

laws

are

changing

rapidly,

and

new

legislation

proposed

enacted

number

other

states

imposes,

has

the

potential

impose,

additional obligations

on companies

that process

confidential, sensitive

and personal

information, and

will continue

to shape

the data

privacy

environment

nationally.

The

U.S.

federal

government

also

focused

privacy

matters.

Any

failure

any

our

business

partners

comply

with

applicable

laws,

rules,

and

regulations

may

result

investigations

actions

against

governmental entities, private

claims and litigation, fines,

penalties or other liabilities.

Such events may increase

our expenses, expose

us to

liabilities, and

impair our reputation,

which could have

a material

adverse effect

on our business.

While we

aim to comply

with

applicable data protection

laws and obligations

in all material

respects, there

is no assurance

that we will

not be subject

to claims that

have

violated

such

laws

and

obligations,

will

able

successfully

defend

against

such

claims,

will

not

subject

significant fines

and penalties

in the

event of

non-compliance. Additionally,

to the

extent multiple

state-level laws

are introduced

the U.S. with

inconsistent or conflicting

standards and there

is no federal

law to preempt

such laws, compliance

with such laws

could

be difficult and costly,

or impossible, to achieve, and we could be subject to fines and penalties in the event

of non-compliance.

RISK RELATING

TO THE REGULATION

OF OUR INDUSTRY

We are subject to certain regulatory

restrictions that may adversely affect our operations.

are subject

to supervision

and regulation

by the

Federal Reserve

Board and

the FDIC.

are a

bank holding

company and

financial holding

company under

the Bank

Holding Company

Act of

1956, as

amended. The

Bank is

also subject

to supervision

and

regulation by OCIF.

Under

federal

law,

financial

holding

companies

are

permitted

engage

broader

range

“financial”

activities

than

those

permitted

bank

holding

companies

that

are

not

financial

holding

companies.

financial

holding

company

that

ceases

meet

certain

standards

subject

variety

restrictions,

depending

the

circumstances,

including

the

prohibition

from

undertaking

new activities

or acquiring

shares or

control of

other companies.

If we

fail to

comply with

the requirements

from our

regulators,

may

become

subject

regulatory

enforcement

action

and

other

adverse

regulatory

actions

that

might

have

material

and

adverse

effect on our operations.

The FDIC insures

deposits at

FDIC-insured depository

institutions up

to certain limits

(currently,

$250,000 per depositor

account).

The FDIC charges insured

depository institutions premiums to maintain

the DIF.

In the event of a bank

failure, the FDIC takes control

of a failed

bank and, if

necessary,

pays all insured

deposits up to

the statutory deposit

insurance limits using

the resources of

the DIF.

The FDIC

is required

by law to

maintain adequate

funding of

the DIF,

and the

FDIC may

increase premium

assessments to

maintain

such

funding.

The

Dodd-Frank

Wall

Street

Reform

and

Consumer

Protection

Act

(the

“Dodd-Frank

Act”)

requires

the

FDIC

increase the DIF’s

reserves against future losses, which will

require institutions with assets greater

than $10 billion, such as FirstBank,

to bear an increased responsibility for funding the prescribed reserve to support

the DIF.

The FDIC

may further

increase FirstBank’s

premiums or

impose additional

assessments or

prepayment requirements

in the

future.

The Dodd-Frank Act removed the statutory cap for the reserve ratio, leaving

the FDIC free to set this cap going forward.

Our

compensation

practices

are

subject

oversight

the

Federal

Reserve

Board

and

the

FDIC.

Any

deficiencies

our

compensation

practices

may

incorporated

into

our

supervisory

ratings,

which

can

affect

our

ability

make

acquisitions

perform other actions.

Our compensation

practices are

subject to

oversight

by the

Federal

Reserve

Board

and

the FDIC.

As discussed

in Part

I, Item

“Business” of this

Form 10-K,

the Corporation

currently is subject

to the interagency

guidance governing

the incentive compensation

activities of regulated

banks and bank

holding companies,

and other financial

regulators have also

implemented regulations

regarding

compensation

practices.

Our

failure

satisfy

these

restrictions

and

guidelines

could

expose

adverse

regulatory

criticism,

lowered supervisory ratings, and restrictions on our operations and acquisition activities.

are

subject

regulatory

capital

adequacy

guidelines,

and,

fail

meet

these

guidelines,

our

business

and

financial

condition will be adversely affected.

are subject

to stringent

regulatory

capital requirements.

Although

the Corporation

and FirstBank

met general

well-capitalized

capital ratios

as of

December 31,

2023, and

we expect

both companies

will continue

to exceed

the minimum

risk-based and

leverage

capital

ratio

requirements

for

well-capitalized

status

under

the

current

capital

rules,

cannot

assure

that

will

remain

such

levels.

fail

meet

these

minimum

capital

guidelines

and

other

regulatory

requirements,

our

business

and

financial

condition

will be materially and adversely affected.

If we fail to maintain certain capital

levels or are deemed not well managed under

regulatory

exam procedures,

or if we

experience certain

regulatory violations,

our status as

a financial

holding company,

and our ability

to offer

certain financial products will be compromised and our financial condition

and results of operations could be adversely affected.

Monetary

policies

and

regulations

the

Federal

Reserve

Board

could

adversely

affect

our

business,

financial

condition

and

results of operations.

In addition

to being

affected

by general

economic conditions,

our earnings

and growth

are affected

by the

policies of

the Federal

Reserve Board. An important

function of the Federal

Reserve Board is to regulate

the money supply and

credit conditions. Among the

instruments

used

the

Federal

Reserve

Board

implement

these

objectives

are

open

market

operations

U.S.

government

securities,

adjustments

the

discount

rate

and

changes

reserve

requirements

for

bank

deposits.

These

instruments

are

used

varying combinations to

influence overall economic

growth and the

distribution of credit,

bank loans, investments

and deposits. Their

use also affects interest rates charged on loans or paid

on deposits.

The monetary policies

and regulations of

the Federal Reserve

Board, which include

d, but were

not limited to,

multiple increases in

the federal

funds rate

to reduce inflation,

have had

a significant effect

on the

operating results

of commercial

banks and

are expected

to continue

to do

so in

the future.

The effects

of such

policies upon

our business,

financial condition

and results

of operations

have

been adverse in the past and may be adverse in the future.

are subject

to numerous

laws designed

to protect

consumers, including

the Community

Reinvestment Act

and fair

lending

laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The

Community

Reinvestment

Act,

the

Equal

Credit

Opportunity

Act,

the

Fair

Housing

Act

and

other

fair

lending

laws

and

regulations impose nondiscriminatory

lending requirements on financial

institutions. The U.S. Department

of Justice and other

federal

agencies

are

responsible

for

enforcing

these

laws and

regulations.

A successful

regulatory

challenge

institution's performance

under the Community Reinvestment

Act, the Equal Credit

Opportunity Act, the Fair

Housing Act or any

of the other fair lending

laws

and regulations

could result in

a wide variety

of sanctions, including

damages and civil

money penalties, injunctive

relief, restrictions

on mergers and acquisitions

activity, restrictions

on expansion and restrictions on entering

new business lines. Private parties may

also

have the

ability to

challenge an

institution's performance

under fair

lending laws

in private

class action

litigation. Such

actions could

have a material adverse effect on our business, financial condition

and results of operations.

face

risk

noncompliance

and

enforcement

action

the

Bank

Secrecy

Act

and

other

anti-money

laundering

statutes and regulations.

The

Bank

Secrecy

Act,

the

USA

PATRIOT

Act,

and

other

laws

and

regulations

require

financial

institutions

institute

and

maintain

effective

anti-money

laundering

program

and

file

suspicious

activity

and

currency

transaction

reports

appropriate,

among

other

duties.

The

Financial

Crimes

Enforcement

Network

authorized

impose

significant

civil

money

penalties

for

violations

those

requirements

and

has

recently

engaged

coordinated

enforcement

efforts

with

the

individual

federal

banking

regulators, as well

as the U.S. Department

of Justice’s

Drug Enforcement Administration.

are also subject

to increased scrutiny

our compliance with

trade and economic sanctions

requirements and rules enforced

by OFAC.

If our policies, procedures

and systems

are deemed

deficient, we

would be

subject to

liability,

including fines

and regulatory

actions, which

may include

restrictions on

our

ability to pay dividends and the necessity to obtain regulatory

approvals to proceed with certain aspects of our business

plan, including

our acquisition plans. Failure

to maintain and implement adequate

programs to combat money laundering

and terrorist financing could

also have serious reputational consequences

for us. Any of these results

could have a material adverse

effect on our business, financial

condition and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 1C. Cybersecurity

Cybersecurity Risk Management and Strategy

The Corporation recognizes

the significance of cybersecurity

in the financial

industry and the potential

risks associated, such

as the

risks arising from

the loss of confidentiality,

integrity,

or availability of

information systems. The

Corporation’s

processes to identify,

assess, and

monitor material

risks from

cybersecurity threats

are part

of its Enterprise

Risk Management

(“ERM”) Program,

which is

documented as

part of the

Corporate Incident

Response Program

and under which

the Corporation has

implemented a

comprehensive

Corporate Information

Security Program

(“CISP”). Cybersecurity

risk is

managed as

part of

the overall

information technology

risk,

under

the

direction

the

Corporate

Security

Office

(“CSO”)

led

the

Corporate

Security

Officer

(“CSO

Officer”),

who

directly

reports to the Chief Operations Officer.

The CSO Officer also serves as Chief Information Security Officer

(“CISO”).

The

CISP

outlines

the

Corporation’s

overall

vision,

direction,

and

governance

protect

the

confidentiality,

integrity,

and

availability

customer

information

and

seeks

prevent

unauthorized

access

required

regulatory

guidelines

and

industry

security best practices. The CISP

is based on well-renowned frameworks

such as the International Organizational

Standard ISO 27000

series and

the NIST

Cybersecurity Framework.

As such,

it serves as

a guide

for the

implementation of

security safeguards

across the

Corporation

and

its

subsidiaries.

The

CISP

also

addresses

cybersecurity

breaches

and

procedures

for

appropriate

response

efforts,

including

any

required

notification,

depending

on the

severity

of the

specific security

incident. In

addition,

the

CISP incorporates

risk-based approach

to ensure that

risk is

treated in

a consistent

and effective

matter and

is designed

to protect

classified information

prevent

disclosure

unauthorized

individuals;

prioritize

the

use

information

security

resources

concentrating

critical

business

applications;

develop

quality,

cost-effective,

and

reliable

systems;

ensure

the

proper

and

secure

disposal

sensitive

information; and implement adequate processes to ensure compliance.

The ERM

Program

includes a

risk-based

escalation process

to manage

corporate incidents,

including

cybersecurity incidents,

and

notify

the

Risk

Committee

the

Board

Directors

and

applicable

stakeholders

appropriate.

The

Corporation

incorporates

the

ERM Department,

which is

comprised of

several members

such as

the ERM

Director

who is

part of

senior management,

as well

external

expertise,

the

review

its

processes,

including

independent

third-party

assessment

cybersecurity

measures

and

controls. The

Corporation also

invests in

threat intelligence,

vulnerability management,

and incident

response drills.

Furthermore,

all

of the

Corporation’s

employees and

consultants with

access to

the Corporation’s

network are

required to

complete a

comprehensive

cybersecurity

awareness

program

annual

basis.

Additionally,

awareness

and

training

information

technology

and

cybersecurity risk is provided to the Board on a regular basis.

The

Corporation

has

Vendor

Management

Program

and

Third-Party

Risk

Management

function

manage

the

cybersecurity

risks

associated

with

conducting

business

with

third-party

vendors,

which

includes

the

requirement

for

third-party

vendors

implement

appropriate

measures

ascertain

security

and

confidentiality

the

Corporation’s

resources.

The

Corporation

places

vendors into tiers

based on the

inherent risk due

to the nature

of the relationship

with that vendor

to determine any

additional security

requirements commensurate to such level of risk.

The Corporation does not believe

that risks from cybersecurity threats or

attacks, including as a result of any

previous cybersecurity

incidents, have materially

affected the Corporation

’s business

strategy,

results of operations or

financial condition as

of December 31,

2023.

While

the

Corporation

continues

closely

monitor

cyber

risk

and

has

implemented

processes

that

are

intended

assess,

identify,

and manage

material risks

from cybersecurity

threats, security

controls, no

matter how

well designed

or implemented,

may

only partially

mitigate and

not fully eliminate

these risks.

Events, when

detected by

security tools

or third parties,

may not

always be

immediately

understood

acted

upon.

See

Item

1A,

“Risk

Factors

–

Risks

Relating

Cybersecurity

and

Technology”

for

information on how cybersecurity risk could adversely affect the

Corporation, which should be read in conjunction with this Item 1C.

Governance

Responsibility for

risk oversight

and management

generally lies

with the

Corporation’s

Board of

Directors. To

effectively manage

oversight

the

CISP’s

governance

and

cybersecurity

risk

management,

the

Board

has

delegated

such

responsibility

the

Risk

Committee.

part

its

oversight,

the

Risk

Committee

receives

reports

from

the

Executive

Risk

Management

Committee

and

Information

Technology

(“IT”)

Steering

Committee,

which

are

committees

the

management

level,

the

Corporation’s

cybersecurity processes.

The Corporate

Internal Audit

Department performs

periodic audits of

the Corporation’s

information security

practices

and

presents

them

the

Audit

Committee

the

Board.

The

scope

testing is

accordance

with

applicable

regulatory

guidance and prudent business practices. The periodicity of

testing is determined by the Corporate Internal Audit Department

based on

their risk

assessment. Findings

from internal

audit procedures

are reported

to Management

and the

Audit Committee

of the

Board of

Directors. In addition, the

Vendor

Management Committee periodically

reports to the Risk

Committee about the Vendor

Management

program

status.

The

Risk Committee

provides

the

Board with

updated

information

on the

matters

discussed

the Risk

Committee

meetings

as it

relates

the

CISP and

the

overall

information

security

strategic

direction

and

evaluates

and

approves

(if

necessary)

reports presented by executive management related to the information

security strategic direction of the Corporation.

The

CSO,

led

the

CSO

Officer,

oversees

the

CISP,

its

development,

and

any

applicable

updates

response

changes

operations and other circumstances,

and reports on a quarterly

basis to the IT Steering

Committee and to the

Board’s Risk Committee.

The CSO Officer,

who has been in charge since

2016, has over 20 years of experience

in functional expertise concerning all

aspects of

information

security,

integrity

and

privacy

systems,

and

data

resources,

and

holds

several

relevant

licenses

and/or

certifications.

Also, certain

topics related

to information

security are

presented on

an ad

hoc basis

to the

Executive

Risk Management

Committee.

The CSO provides

the Board’s

Risk Committee regular

reports and engages in

discussions on the effectiveness

of the CISP,

including

risk mitigation

strategy and

progress. The

Board’s

Risk Committee

reviews and

approves the

CISP annually

and receives

a report

the security safeguards annually.

See “Risk Management – Risk Governance” for more information on the Corporation’s

risk governance structure.

Item 2. Properties

As of December 31, 2023, First BanCorp. has ownership in the following

principal buildings:

Headquarters –

Located at

First Federal

Building, 1519

Ponce de

León Avenue,

San Juan,

Puerto Rico.

Approximately 51%

of this 16-story office building is owned by the Corporation.

Service Center – Located

at 1130

Muñoz Rivera Avenue,

San Juan, Puerto

Rico. This facility,

which is fully occupied

by the

Corporation,

houses

over

1,000

employees

from

Human

Resources,

Data

processing

and

operations,

Administrative

Operation, Mortgage operations, collections, and Loss Mitigation, and

certain other departments.

Consumer Lending

Center –

Located at

876 Muñoz

Rivera Avenue,

San Juan,

Puerto Rico.

This three-story

facility is

fully

occupied

by the

Corporation

and

accommodates

retail

branch,

Money

Express

Headquarters,

Auto

Wholesale

and

Retail

Financing, and Leasing Financing, among others.

The Corporation

owns 18

retail branches

and 10

office centers,

other facilities,

and/or parking

lots. It

leases 88

branch premises,

loan

and

office

centers

and

other

facilities.

certain

situations,

financial

services

such

mortgage

and

insurance

businesses

and

commercial banking

services are

in the

same building

or branch.

All of

these premises

are in

Puerto Rico,

Florida, the

USVI and

the

BVI.

Management

believes

that

the

Corporation’s

properties

are

well

maintained

and

are suitable

for

the

Corporation’s

business

presently conducted.

Item 3. Legal Proceedings

Reference

made

Note

–

“Regulatory

Matters,

Commitments

and

Contingencies”

the

audited

consolidated

financial

statements included in Part II, Item 8 of this Form 10-K, which is incorporated

herein by reference.

Item 4. Mine Safety Disclosure.

Not applicable.

PART

Item 5. Market for Registrant’s Common Equity and Related

Stockholder Matters and Issuer Purchases of Equity Securities

INFORMATION ABOUT

MARKET AND HOLDERS

The Corporation’s

common stock

is traded

on the

New York

Stock Exchange

(“NYSE”) under

the symbol

FBP.

On February

21,

2024, there

were 296 holders

of record

of the Corporation’s

common stock,

not including

beneficial owners

whose shares are

held in

the name of brokers or other nominees.

December 31,

2023

and

2022,

the

Corporation

had

54,360,304

and

40,954,057

held

treasury

stock, respectively.

Refer to

“Stock Repurchases”

for more

information on

common stock

repurchases during

the fourth

quarter of

2023 held

as treasury

stock.

DIVIDENDS

Since November 2018,

the Corporation has

made quarterly cash

dividend payments on

its shares of common

stock. On February

2024, the Corporation announced that its Board of

Directors had declared a quarterly cash dividend

of $0.16 per common share, which

represents

increase

$0.02

per

common

share,

14%

increase,

compared

its

most

recent

quarterly

dividend

paid

December 2023.

The dividend

is payable

on March

8, 2024

to shareholders

of record

at the

close of

business on

February 23,

2024.

The

Corporation

intends

continue

pay

quarterly

dividends

common

stock.

However,

the

Corporation’s

common

stock

dividends,

including

the

declaration,

timing

and

amount,

remain

subject

consideration

and

approval

the

Corporation’s

Board

Directors at

the relevant

times. Information

regarding restrictions

on dividends,

is set

forth in

Part I,

Item 1,

“Business -Supervision

and Regulation–

Dividend Restrictions” and incorporated herein by reference.

The PR Tax Code requires

the withholding of income taxes from dividend income sourced within Puerto

Rico to be received by any

individual, resident of Puerto Rico or not, trusts and estates and by non-resident

custodians, partnerships, and corporations.

Residents of Puerto Rico

A special tax of 15% withheld at

source is imposed, in lieu of a regular

tax, on any eligible dividends paid to

individuals, trusts, and

estates.

Eligible

dividends

include

dividends

paid

domestic

Puerto

Rico

corporation.

However,

the

taxpayer

can

elect

excluded from

the 15%

special tax

and be

taxed at

regular rates.

Once this

election is

made, it

is irrevocable.

The election

allows the

taxpayer

to include

the eligible

dividends

received in

ordinary income

and take

a credit

for the

amount of

tax withheld

in excess,

any.

Individuals that

are residents

of Puerto

Rico are subject

to an

alternative minimum

tax (“AMT”) on

the AMT Net

Taxable

Income

if their

regular tax

liability is

less than

the alternative

minimum

tax liability.

The AMT

applies to

individual

taxpayers whose

AMT

Net Taxable

Income exceeds $25,000.

The individual AMT rate ranges

from 1% to 24% depending

on the AMT Net Taxable

Income.

The AMT Net

Taxable

Income includes various

categories of tax-exempt

income and income

subject to preferential

rates as provided

by the PR Tax

Code, such as

dividends on the

Corporation’s common

stock and long-term

capital gains recognized

on the disposition

of the Corporation’s common stock.

Nonresident U.S. Citizens

Dividends paid to a U.S. citizen who is not a resident of Puerto Rico will be subject

to a 15% income tax.

Nonresident U.S. citizens

have the right to partial or total exemptions under section 1062.08

of the PR Tax Code.

Nonresident individuals that are

not US citizens

Dividends paid to any

individual who is not a

citizen of the United States and

who is not a resident

of Puerto Rico will generally

subject to a 15% Puerto Rico income tax which will be withheld at source.

Foreign Corporations and Partnerships

Corporations

and partnerships

not organized

under Puerto

Rico

laws that

have

not engaged

in a

trade

or business

in Puerto

Rico

during

the

taxable

year

which

the

dividend,

any,

paid

are

subject

the

10%

dividend

tax

withholding.

Corporations

partnerships not organized

under the laws of

Puerto Rico that have

engaged in a trade

or business in Puerto

Rico are not subject

to the

10% withholding, but they must declare any dividend as ordinary income on their

Puerto Rico income tax return.

STOCK REPURCHASES

Since

April

2021,

the

Corporation’s

Board

Directors

has

announced

three

repurchase

program

authorizations

for

repurchases

totaling

$875

million

the

Corporation’s

outstanding

stock.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with Rule

10b5-1

under the

Exchange Act.

During 2023,

the Corporation

repurchased 14,050,830

shares of

its common

stock at

average price

of $14.23

for a

total cost

of $200.0

million, of

which 8,969,998

million shares

for a

total cost

of $125.0

million, were

associated with

the remaining

amount of

the 2022

capital plan

authorization of

$350 million

and 5,080,832

million shares,

for a

total

cost

$75.0

million,

were

associated

with

the

2023

capital

plan

authorization

$225

million.

December

31,

2023,

the

Corporation has remaining authorization

to repurchase approximately $150

million of common stock.

The amount and timing of

stock

repurchases will be

based on various

factors, including our

capital requirements,

market conditions (including

the trading price

of our

stock), and regulatory and legal considerations.

The following table provides information relating to the

Corporation’s purchases of

shares of its common stock in the fourth quarter

of 2023.

Period

Total Number of Shares

Purchased

Average Price

Paid per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

Approximate Dollar Value

of Shares That May Yet

Purchased Under The Plans

or Programs (in thousands)

(1)

October 1, 2023 - October 31, 2023

1,835,096

13.63

1,834,086

200,000

November 1, 2023 - November 30, 2023

1,701,847

14.69

1,701,847

175,000

December 1, 2023 - December 31, 2023

1,544,899

16.18

1,544,899

150,000

Total

5,081,842

(2) (3)

5,080,832

(1)

As of December 31, 2023,

the Corporation was authorized to

purchase up to $225 million

of the Corporation’s

common stock under the program,

that was publicly announced

on July 24,

2023, of which $75 million had

been utilized. The remaining $150 million in

the table represents the remaining amount

authorized under the stock repurchase

program as of December 31,

2023. The program does not obligate the Corporation to acquire

any specific number of shares, does not have an

expiration date and may be modified, suspended, or terminated

at any time

at the Corporation's discretion.

Under the stock repurchase program,

shares may be repurchased through

open market purchases,

accelerated share repurchases and/or

privately negotiated

transactions, including under plans complying with Rule 10b5-1 under

the Exchange Act.

(2)

Includes 5,080,832 shares of common stock repurchased in the open

market at an average price of $14.76 for a total purchase price

of approximately $75 million.

(3)

Includes 1,010 shares

of common stock

acquired by the

Corporation to cover

minimum tax withholding

obligations upon the

vesting of equity-based

awards. The

Corporation intends to

continue to satisfy statutory tax withholding obligations in connection

with the vesting of outstanding restricted stock and performance

units through the withholding of shares.

STOCK PERFORMANCE GRAPH

The

following

graph

shall

not

deemed

incorporated

reference

into

any

filing

under

the

Securities

Act

the

Exchange

Act,

except

the

extent

that First

BanCorp.

specifically

incorporates

this information

reference,

and

shall not

otherwise

deemed

filed with the SEC.

The

graph

below

compares

the

cumulative

total

stockholder

return

First

BanCorp.

during

the

measurement

period

with

the

cumulative

total return,

assuming reinvestment

of dividends,

of the

S&P 500

Index and

the S&P

Supercom

Banks Index

(the “Peer

Group”).

The Performance

Graph assumes

that $100

was invested

on December

31, 2018

in each

of First

BanCorp. common

stock,

the S&P 500 Index and

the Peer Group. The comparisons

in this table are set forth

in response to SEC disclosure requirements

and are

therefore not intended to forecast or be indicative of future performance

of First BanCorp.’s common

stock.

The cumulative total stockholder return was obtained

by dividing (i) the cumulative amount of dividends per

share, assuming dividend

reinvestment since the

measurement point, December

31, 2018, plus (ii)

the change in the

per share price

since the measurement

date,

by the share price at the measurement date.

Item 6. [Reserved]

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

FINANCIAL

CONDITION

AND

RESULTS

OPERATIONS (“MD&A”)

The following MD&A

relates to the accompanying

audited consolidated financial

statements of First BanCorp.

(the “Corporation,”

“we,” “us,”

“our,”

or “First

BanCorp.”) and

should be

read in

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-GAAP

financial measures are

presented, reconciliations

of non-GAAP financial

measures to the

most comparable GAAP

financial measures,

and references to non-GAAP financial measures reconciliations presented

in other sections.

The detailed financial discussion

that follows focuses on

2023 results compared to

2022. For a discussion of

2022 results compared

to 2021, see Part I, Item 7,

“Management’s Discussion

and Analysis of Financial Condition

and Results of Operations” included

in the

Corporation’s Annual Report

on Form 10-K for the year ended December 31, 2022, filed on February

28, 2023.

this

discussion

and

analysis

our

financial

condition

and

results

operations,

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

the

safe

harbor

provisions

Section

27A

the

Securities

Act

and

Section 21E

of the

Exchange Act.

Forward-looking statements

are not

historical facts

or statements

of current

conditions, but

instead

represent only our beliefs

regarding future events, many

of which, by their nature,

are inherently uncertain and

outside our control. By

identifying

these statements

for you

in this

manner,

we are

alerting you

to the

possibility that

our actual

results, financial

condition,

liquidity and capital actions may differ materially

from the anticipated results, financial condition, liquidity

and capital actions in these

forward-looking

statements. Important

factors

that could

cause our

results, financial

condition, liquidity

and capital

actions to

differ

from those in these statements include, among others, those described in

“Risk Factors” in Part I, Item 1A of this Form 10-K.

EXECUTIVE SUMMARY

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Significant Events

Economy and Market Volatility

The

Federal

Reserve

Board

has

implemented

monetary

policies

designed

curb

inflation.

January

11,

2024

the

Federal

Reserve Board published

the core Personal

Consumption Expenditures Price

Index over the

last 12 months,

which showed that

the all

items

index

increased

2.9

percent

before

seasonal

adjustment.

Other

recent

indicators

suggest

that

economic

activity

has

been

expanding. For 2023 as

a whole, GDP has expanded

at 3.1%. Although still strong,

the labor market remains

tight as payroll job

gains

have been well below those seen in 2022. In January 2024, the national unemployment

rate was 3.7% for the third month in a row.

Following

its

January

31,

2024

meeting,

the

Federal

Reserve

Board

announced

its

decision

leave

the

federal

funds

rate

unchanged,

at a

target

rate of

5.25% to

5.50%. The

Federal Reserve

Board commentary

suggested

that its

policy rate

is likely

at its

peak and

that, if

the economy

continues to

evolve as

expected, it

will likely

be dialing

back policy

restraint at

some point

this year.

Notwithstanding, it does not expect to reach such level of confidence by

the time of the March 2024 meeting.

The Corporation closed an unprecedented and challenging year for

the banking industry with strong financial performance and solid

loan

growth.

Core

deposits,

other

than

government

and

brokered,

contracted

due

the

use

excess

liquidity

across

all

market

segments. Although

the Corporation

is seeing

an expected

correction

in the

credit cycle

of the

consumer lending

business driven

lower

levels

excess

liquidity

and

inflationary

pressures,

the

Corporation

expects

its

ample

reserve

coverage

levels

and

risk

management framework to withstand the impact of any additional credit

deterioration during 2024.

For 2024, the Corporation expects a reduction in the overall

average cost of its deposits as interest rates start to decrease

but expects

to continue to

be impacted by the

shift from non-interest-bearing

deposits to interest-bearing

deposits, though at

a lower degree. Also,

the

Corporation

expects

some

reductions

deposit

balances

due

the

customers’

use

their

excess

liquidity,

which

could

replaced with

wholesale funding

sources. Assuming

no meaningful

changes to

deposit balances,

the Corporation

expects net

interest

income

improve

2024

since

approximately

billion

expected

cash

inflows

from

the

repayments

and

maturities

the

investment portfolio, which is yielding less than 1.5%, will fund

loan growth or be reinvested in higher yielding securities.

The Corporation remains

confident that the economic

prospects of Puerto Rico,

its primary market,

driven by a strong

labor market

and

unprecedented

level

federal

support,

will

support

the

Corporation

continuing

have

strong

financial

performance,

sustainable levels of loan growth, and any additional credit deterioration

contained.

Return of Capital to Shareholders and Dividend

Payment Increase

In 2023, the

Corporation returned approximately

$300 million, or close

to 100% of 2023

earnings, to its shareholders

through $200

million in repurchases of common stock and the payment of approximately

$100 million in common stock dividends.

For

the

year

ended

December

31,

2023,

the

Corporation

repurchased

14.1

million

shares of

its common

stock

for

total cost

$200

million.

this

total,

$75

million

common

stock,

representing

5.1

million

common

weighted-average

price

$14.76,

were

repurchased

under

the

$225

million

stock

repurchase

program

announced

July

24,

2023

(the

“2023

Repurchase

Plan”). As

of February

21, 2024,

the Corporation has

repurchased approximately

7.1 million

shares of common

stock totaling

$107.9

million

through open

market purchases

under the

2023 Repurchase

Plan. With

the additional

purchases, the

Corporation has

$117.1

million

remaining

for

repurchases

under

the

2023

Repurchase

Plan,

which

expects

execute

through

the

end

the

third

quarter of 2024.

On February

8, 2024,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.16

per common

share, which

represents

increase

$0.02

per

common

share,

14%

increase,

compared

its

most

recent

quarterly

dividend

paid

December 2023.

The dividend

is payable

on March

8, 2024,

to shareholders

of record

at the close

of business

on February

23, 2024.

The increased quarterly dividend level equates to an annualized dividend

of $0.64 per common share.

Legislative and Regulatory

comprehensive

discussion

legislative

and

regulatory

matters

affecting

can

found

Part

Item

“Business

–

Supervision and Regulation” of this Form 10-K.

Overview of Results of Operations

The

Corporation’s

results

of operations

depend

primarily

its

net

interest

income,

which

the

difference

between

the

interest

income

earned

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

affected

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

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

personnel,

occupancy,

professional

service

fees,

the

FDIC

insurance

premium,

and

other

costs),

non-interest

income

(mainly

service

charges

and

fees

deposits,

cards

and

processing

income,

and

insurance income), gains (losses) on mortgage banking activities, and income

taxes.

The

Corporation

had

net

income

$302.9

million,

$1.71

per

diluted

common

share,

for

the

year

ended

December

31,

2023,

compared

$305.1

million,

$1.59

per

diluted

common

share,

for

the

year

ended

December

31,

2022.

Other

relevant

selected

financial indicators for the periods presented are included below:

Year

Ended December 31,

2023

2022

2021

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.62

1.57

1.38

Return on Average

Common Equity

(3)

21.86

18.66

12.56

Efficiency Ratio

(4)

50.70

48.25

57.45

(1)

These financial ratios are used by management to monitor the Corporation’s

financial performance and whether it is using its assets efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets

and is calculated by dividing net income by its average total

assets.

(3)

Measures the Corporation’s performance

based on its average common stockholders’ equity and is calculated

by dividing net income by its average total common stockholders’

equity.

(4)

Measures how much the Corporation incurred to generate a

dollar of revenue and is calculated by dividing non-interest expenses

by total revenue.

The key

drivers of

the Corporation’s

GAAP financial

results for

the year

ended December

31, 2023,

compared to

the year

ended

December 31, 2022, include the following:

●

Net interest

income for

the year

ended December

31, 2023

increased to

$797.1 million,

compared to

$795.3 million

for the

year ended December 31, 2022. The increase in net interest income

reflects a 10 basis points increase in net interest margin to

4.22%,

which

was mainly

associated

with the

effect

of both

a higher

interest rate

environment,

driving

an increase

in loan

and investment security yields, and the growth

in the consumer loan portfolio, partially offset

by higher rates paid on deposits

coupled

with

change

the

mix

deposit

and

borrowing

composition.

See

"Net

Interest

Income"

below

for

additional

information.

●

The provision

for credit

losses on

loans, finance

leases, unfunded

loan commitments

and debt

securities for

the year

ended

December 31,

2023 was

$60.9 million,

compared to

$27.7 million

for the

year ended

December 31,

2022. The

increase was

mainly driven by a

combination of loan growth,

higher delinquency and historical

charge-off levels

in the consumer loan

and

finance

lease

portfolios,

and

the

effect

2022

reductions

qualitative

reserves

associated

with

reduced

uncertainty

around the

economic impact

of the COVID-19

pandemic, particularly

on loans in

the hotel, transportation

and entertainment

industries.

Net charge-offs

totaled $67.4

million for

the year

ended December

31, 2023,

or 0.58%

of average

loans,

compared to

$34.2

million,

0.31%

average

loans,

for

the

year

ended

December

31,

2022,

mainly

driven

$29.1

million

increase

consumer loans

and finance leases

net charge-offs.

See “Provision for

Credit Losses” and

“Risk Management”

below for the

analysis of the allowance for credit losses (“ACL”) and non-performing

assets and related ratios.

●

The Corporation

recorded non-interest income

of $132.7 million

for the year

ended December 31,

2023, compared to

$123.1

million for

the year

ended December

31, 2022.

The increase

of $9.6

million in

non-interest income

was mainly

driven by

$3.6

million

gain

recognized

from

legal

settlement,

$3.5

million

increase

card

and

processing

income,

and

$3.0

million

gain

to the

sale of

banking

premise

in the

Florida

region,

partially

offset

by lower

revenues from

mortgage

banking activities. See “Non-Interest Income”

below for additional information.

●

The

Corporation

recorded

non-interest

expenses

$471.4

million

for

the

year

ended

December

31,

2023,

compared

$443.1 million for

the year ended

December 31, 2022.

The increase of

$28.3 million in

non-interest expenses

mainly reflects

a $16.8

million increase

in employees’

compensation and

benefits expenses,

mostly driven

by annual

salary merit

increases

and

minimum

wage adjustments,

and

a FDIC

special assessment

expense

of $6.3

million. The

efficiency

ratio for

the year

ended

December

31,

2023

was

50.70%,

compared

48.25%

for

the

year

ended

December

31,

2022.

See

“Non-Interest

Expenses” below for additional information.

●

Income tax

expense decreased to

$94.6 million

for the year

ended December

31, 2023, compared

to $142.5 million

for 2022

driven by a

lower effective

tax rate and

lower pre-tax income.

The Corporation’s

annual effective

tax rate, excluding

entities

with pre-tax

losses from which

a tax benefit

cannot be

recognized and

discrete items, decreased

to 23.5%

for the year

ended

December 31,

2023, compared

to 31.2%

for 2022. See

“Income Taxes”

below and

Note 22 –

“Income Taxes

”

to the audited

consolidated financial statements included in Part II, Item 8 of this Form

10-K for additional information.

●

As of

December 31,

2023, total

assets were

approximately $18.9

billion, an

increase of

$275.1 million

from December

31,

2022,

primarily reflecting

a $627.7

million increase

in the

total loan

portfolio before

the ACL and

a $182.7

million increase

cash

and

cash

equivalents,

partially

offset

$452.4

million

decrease

total

investment

securities

net

$165.4

million increase in the fair value of available-for-sale debt

securities.

●

As of December

31, 2023,

total liabilities were

$17.4 billion,

an increase of

$103.0 million

from December

31, 2022, driven

$412.5

million

increase

total

deposits,

which

includes

$677.5

million

increase

brokered

certificates

deposit

(“CDs”), partially offset

by a $272.2 million decrease

in borrowings,

primarily in short-term borrowings.

See “Liquidity Risk

Management”

below for additional information about the Corporation’s

funding sources and strategy.

●

The Bank’s

primary sources of funding

are consumer and commercial

core deposits, which exclude

government deposits and

brokered

CDs.

December

31,

2023,

these

core

deposits,

amounting

$12.6

billion,

funded

66.64%

total

assets.

Excluding

fully

collateralized

government

deposits,

estimated

uninsured

deposits amounted

to $4.4

billion

as of

December

31, 2023. In

addition to approximately

$2.8 billion in

cash and free

high-quality liquid

assets, the Bank

maintains borrowing

capacity

the

Federal

Home

Loan

Bank

(“FHLB”)

and

the

Federal

Reserve

Bank

New

York

’s

(the

“FED”)

Discount

Window.

As of

December 31,

2023,

the Corporation

had approximately

$1.5 billion

available for

funding under

the FED’s

Discount Window and

$924.2 million available for

additional borrowing capacity on FHLB

lines of credit based on

collateral

pledged

these

entities.

combined

basis,

December

31,

2023,

the

Corporation

had

$5.2

billion,

118%

estimated

uninsured

deposits,

available

meet

liquidity

needs.

See

“Liquidity

Risk

Management”

below

for

additional

information about the Corporation’s

funding sources and strategy.

●

As of

December 31,

2023, the

Corporation’s

total stockholders’

equity was

$1.5 billion,

an increase

of $172.1

million from

December 31, 2022, mainly

driven by a $165.4 million increase

in the fair value of

available-for-sale debt securities recorded

part

accumulated

other

comprehensive

loss

and

net

income

generated

2023,

partially

offset

$200.0

million

repurchases

common

stock

and

$99.6

million

dividends

declared

2023.

The

Corporation’s

CET1

capital,

tier

capital, total capital,

and leverage ratios

were 16.10%, 16.10%,

18.57%, and 10.78%,

respectively,

as of December

31, 2023,

compared

CET1

capital,

tier

capital,

total

capital,

and

leverage

ratios

16.53%,

19.21%,

and

10.70%,

respectively, as of

December 31, 2022.

See “Risk Management – Capital” below for additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments, decreased

by $230.8

million to

$5.1 billion

for the

year ended

December 31,

2023. See

“Financial Condition

and Operating Data Analysis” below for additional information.

●

Total

non-performing

assets were

$125.9 million

as of

December 31,

2023, a

decrease of

$3.3 million,

from December

31,

2022,

primarily

decrease

$10.6

million

nonaccrual

residential

mortgage

loans,

partially

offset

$7.6

million increase in nonaccrual consumer

loans, mainly in the auto loan and

finance lease portfolios.

See “Risk Management –

Nonaccrual Loans and Non-Performing Assets” below for additional information.

●

Adversely

classified

commercial

and

construction

loans

decreased

$26.1

million

$67.5

million

December

31,

2023,

compared to

December 31,

2022, mainly

driven by

the payoff

of a

$24.3 million

commercial

and industrial

(“C&I”)

participated loan in the Florida region.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation

has included

in this

Form 10-K

the following

financial measures

that are

not recognized

under GAAP,

which are

referred to as non-GAAP financial measures:

Net Interest Income,

Interest Rate Spread,

and Net Interest Margin, Excluding

Valuations

and on a Tax

-Equivalent Basis

Net interest

income, interest

rate spread,

and net

interest margin,

excluding the

changes in

the fair

value of

derivative instruments

and on

a tax-equivalent

basis, are

reported in

order to

provide to

investors additional

information about

the Corporation’s

net interest

income

that management

uses and

believes should

facilitate comparability and

analysis of

the periods

presented.

The changes

in the

fair value

of derivative

instruments have

no effect

on interest

due or

interest earned

on interest-bearing

liabilities or

interest-earning

assets, respectively.

The tax-equivalent

adjustment to

net interest

income recognizes

the income

tax savings

when comparing

taxable

and

tax-exempt

assets

and

assumes

marginal

income

tax

rate.

Income

from

tax-exempt

earning

assets

increased

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

the banking

industry

present

net

interest

income,

interest

rate

spread,

and

net

interest

margin

fully

tax-

equivalent basis. This adjustment

puts all earning assets, most notably

tax-exempt securities and tax-exempt

loans, on a common basis

that facilitates comparison of results to the results of peers.

See “Result of Operations

– Net Interest Income”

below, for

the table that reconciles

net interest income

in accordance with GAAP

the

non-GAAP

financial

measure

net

interest

income,

excluding

valuations,

and

tax-equivalent

basis

for

the

indicated

periods. The table also reconciles

net interest spread and

net interest margin on

a GAAP basis to these items

excluding valuations, and

on a tax-equivalent basis.

Tangible

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

common equity

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

Tangible

common equity is total

common equity

less

goodwill

and

other

intangibles.

Similarly,

tangible

assets

are

total

assets

less

goodwill

and

other

intangibles.

Management

and

many

stock

analysts

use

the

tangible

common

equity

ratio

and

tangible

book

value

per

common

conjunction

with

traditional bank capital

ratios to compare

the capital adequacy

of banking organizations

with significant

amounts of goodwill

or other

intangible assets,

typically stemming

from the

use of

the purchase

method of

accounting for

mergers

and acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures may

be useful to

investors. Neither

tangible common

equity nor

tangible assets, or the related measures,

should be considered in isolation or

as a substitute for stockholders’ equity,

total assets, or any

other measure

calculated in

accordance with

GAAP.

Moreover,

the manner

in which

the Corporation

calculates its

tangible common

equity, tangible assets, and

any other related measures may differ from that of other companies reporting

measures with similar names.

See “Risk

Management –

Capital” below

for the

table that

reconciles the

Corporation’s

total equity

and total

assets in

accordance

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income,

Adjusted Non-Interest Income and Adjusted Non-Interest

Expenses

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

net

income,

non-interest

income

and

non-interest expenses

to exclude

items that

management believes

are not

reflective of

core operating

performance (“Special

Items”).

The financial results

for the year

ended December 31,

2022 did not

include any significant

Special Items. The

financial results for

the

years ended December 31, 2023 and 2021 included the following Special

Items:

Year

Ended December 31, 2023

A $6.3

million ($3.9

million after-tax)

FDIC special

assessment expense

recognized as

a result of

the final rule

approved by

the

FDIC

Board

Directors

November

16,

2023

recover

the

loss

the

Deposit

Insurance

Fund

associated

with

protecting

uninsured

deposits

following

certain

financial

institution

failures

during

the

first

half

2023

means

quarterly

special

assessment

rate

3.36

basis

points

applied

the

special

assessment

base

during

eight-quarter

collection

period.

The

special assessment

base

is equal

to estimated

uninsured

deposits reported

as of

December

31, 2022,

adjusted

exclude

the

first

billion

such

deposits.

The

FDIC

special

assessment

reflected

the

consolidated

statements of income

as part of

“FDIC deposit insurance”

expenses, which

reflects the expected

total payment to

be made to

the FDIC as of December 31, 2023.

$3.6

million

($2.3

million

after-tax)

gain

recognized

from

legal

settlement

reflected

the

consolidated

statements

income as part of

“Other non-interest income.”

$1.6

million

gain

the

repurchase

$21.4

million

junior

subordinated

debentures

reflected

the

consolidated

statements

income

“Gain

early

extinguishment

debt.”

The

junior

subordinated

debentures

are

reflected

the

consolidated statements

of financial condition

as “Other long-term

borrowings.” The

purchase price

equated to

92.5% of the

$21.4

million

par value

of the

trust-preferred

securities (“TRuPs”).

The 7.5%

discount resulted

in the

gain

of $1.6

million.

The gain, realized at the holding company level, had no effect on

the income tax expense recorded in 2023.

Year

Ended December 31, 2021

Merger and restructuring

costs of $26.4 million ($16.5

million after-tax) in

connection with the Banco

Santander Puerto Rico

(“BSPR”)

acquisition

integration

process

and

restructuring

initiatives.

Merger

and

restructuring

costs

included

approximately

$6.5

million

Voluntary

Employee

Separation

Program

(the

“VSP”)

well

involuntary

separation actions

implemented in

the Puerto

Rico region.

In addition,

merger and

restructuring costs

included costs

system

conversions,

accelerated

depreciation

charges

planned

closures

and

consolidation

branches

accordance with the Corporation’s

integration and restructuring plan, and other integration related efforts.

Costs of

$3.0 million

($1.9 million

after-tax)

related to

the COVID-19

pandemic response

efforts,

primarily costs

related to

additional cleaning, safety materials, and security measures.

Adjusted Net Income – The

following table reconciles for

the years ended December 31,

2023 and 2021, the reported

net income to

adjusted

net

income,

non-GAAP

financial

measure

that

excludes

the

Special

Items

identified

above,

and

shows

the

net

income

reported for the year ended December 31, 2022.

Year Ended

December 31,

2023

2022

2021

(In thousands)

Net income, as reported (GAAP)

302,864

305,072

281,025

Adjustments:

Merger and restructuring costs

26,435

FDIC special assessment expense

6,311

COVID-19 pandemic-related expenses

2,958

Gain recognized from a legal settlement

(3,600)

Gain on early extinguishment of debt

(1,605)

Income tax impact of adjustments

(1)

(1,017)

(11,023)

Adjusted net income (Non-GAAP)

302,953

305,072

299,395

(1)

See "Adjusted Net Income, Adjusted Non-Interest Income and Adjusted

Non-Interest Expenses" above for the individual tax impact

related to the above adjustments, which were based on

the Puerto Rico statutory tax rate of 37.5%, as applicable.

Adjusted

non-interest

expenses

–

Non-interest

expenses

for

the

year

ended

December

31,

2023

were

adjusted

for

the

aforementioned

$6.3

million

FDIC special

assessment

expense

reflected

the consolidated

statements

income

as part

“FDIC

deposit insurance” expenses.

The following table reconciles

for the year ended

December 31, 2021 the

non-interest expenses to adjusted

non-interest expenses,

which is a non-GAAP financial measure that excludes the relevant Special Items identified

above:

2021

Non-Interest Expenses

(GAAP)

Merger and

Restructuring Costs

COVID 19 Pandemic-

Related Expenses

Adjusted (Non-GAAP)

(In thousands)

Non-interest expenses

488,974

26,435

2,958

459,581

Employees' compensation and benefits

200,457

200,390

Occupancy and equipment

93,253

2,601

90,652

Business promotion

15,359

15,337

Professional service fees

59,956

Taxes, other than income taxes

22,151

261

21,890

FDIC deposit insurance

6,544

Net gain on OREO operations

(2,160)

Credit and debit card processing expenses

22,169

Communications

9,387

Merger and restructuring costs

26,435

Other non-interest expenses

35,423

35,416

CRITICAL ACCOUNTING ESTIMATES

The

accounting

principles

the

Corporation

and

the

methods

applying

these

principles

conform

GAAP.

preparing

the

consolidated

financial

statements,

management

required

make

estimates,

assumptions,

and

judgments

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

expenses

during

the

reporting

periods.

Accounting

estimates

require

assumptions

and

judgments

about

uncertain

matters

that

could

have

material

effect

the

consolidated

financial

statements.

The

Corporation’s

critical

accounting

estimates

that

are

particularly

susceptible

significant

changes

include

the

following:

(i)

the

ACL;

(ii)

valuation

financial

instruments;

and

(iii)

income taxes. Actual results could differ from estimates and assumptions

if different outcomes or conditions prevail.

Allowance for Credit Losses

The Corporation

maintains an ACL

for loans

and finance

leases based upon

management’s

estimate of the

lifetime expected

credit

losses in the loan portfolio, as of the balance sheet date, excluding

loans held for sale. Additionally,

the Corporation maintains an ACL

for

held-to-maturity

and

available-for-sale

debt

securities,

and

other

off-balance

sheet

credit

exposures

(

e.g.

, unfunded

loan

commitments). For loans and finance leases, unfunded loan commitments,

and held-to-maturity debt securities, the estimate of lifetime

credit losses

includes the

use of

quantitative models

that incorporate

forward-looking macroeconomic

scenarios that

are applied

over

the

contractual

lives

the

portfolios,

adjusted,

appropriate,

for

prepayments

and

permitted

extension

options

using

historical

experience.

For

purposes

the

ACL

for

lending

commitments,

such

allowance

determined

using

the

same

methodology

the

ACL

for

loans,

while

also

taking

into

consideration

the

probability

drawdowns

funding,

and

whether

such

commitments

are

cancellable by us. The

ACL for available-for-sale debt

securities is measured using a

risk-adjusted discounted cash flow

approach that

also

considers

relevant

current

and

forward-looking

economic

variables

and

the

ACL

limited

the

difference

between

the

fair

value of the security

and its amortized cost.

Judgment is specifically applied

in the determination of

economic assumptions, the length

the

initial

loss

forecast

period,

the

reversion

losses

beyond

the

initial

forecast

period,

historical

loss

expectations,

usage

macroeconomic

scenarios,

and

qualitative

factors,

which

may

not

adequately

captured

the

loss

model,

further

discussed

below.

The macroeconomic

scenarios utilized by

the Corporation include

variables that have

historically been key

drivers of increases

and

decreases

credit

losses.

These

variables

include,

but

are

not

limited

to,

unemployment

rates,

housing

and

commercial

real

estate

prices, gross domestic

product levels, retail

sales, interest rate

forecasts, corporate

bond spreads, and

changes in equity

market prices.

The

Corporation

derives

the

economic

forecasts

uses

its

ACL

model

from

Moody's

Analytics.

The

latter

has

large

team

economists, database managers and operational engineers with a history of

producing monthly economic forecasts for over 25 years.

The

Corporation

has

currently

set

initial

forecast

period

(“reasonable

and

supportable

period”)

two

years

and

reversion

period of up to three

years, utilizing a straight-line

approach and reverting back

to the historical macroeconomic

mean for Puerto Rico

and the Virgin

Islands regions. For the

Florida region, the methodology

considers a reasonable and

supportable forecast period

and an

implicit reversion towards the historical

trend that varies for each macroeconomic

variable. After the reversion period,

a historical loss

forecast

period

covering

the

remaining

contractual

life,

adjusted

for

prepayments,

used

based

the

change

key

historical

economic variables

during representative

historical expansionary

and recessionary periods.

Changes in economic

forecasts impact the

probability

default

(“PD”),

loss-given

default

(“LGD”),

and

exposure

default

(“EAD”)

for

each

instrument,

and

therefore

influence the amount of future cash flows for each instrument that the Corporation

does not expect to collect.

Further,

the

Corporation

periodically

considers

the

need

for

qualitative

adjustments

the

ACL.

Qualitative

adjustments

may

related to and include,

but not be limited to,

factors such as the

following: (i) management’s

assessment of economic forecasts

used in

the

model

and

how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization specific

risks such

as credit

concentrations, collateral

specific risks,

nature,

and size

of the portfolio

and external

factors

that may

ultimately impact

credit quality,

and (iii)

other limitations

associated with

factors such

as changes

in underwriting

and loan

resolution

strategies,

among

others.

The

qualitative

factors

applied

December

31,

2023,

and

the

importance

and

levels

the

qualitative

factors

applied,

may

change

future

periods

depending

the

level

changes

items

such

the

uncertainty

economic

conditions

and

management's

assessment

the

level

credit

risk

within

the loan

portfolio

result

such

changes,

compared

to the

amount of

ACL calculated

by the

model.

The evaluation

of qualitative

factors

is inherently

imprecise

and

requires

significant management judgment.

The ACL can also be

impacted by factors outside the Corporation’s

control, which include unanticipated

changes in asset quality of

the

portfolio,

such

as deterioration

borrower

delinquencies,

credit

scores

our

residential

real

estate and

consumer

portfolio.

Further,

the current

fair

value of

collateral

is utilized

to assess

the

expected

credit losses

when

a financial

asset is

considered

to be

collateral dependent.

Our process for determining

the ACL is further

discussed in Note 1

– “Nature of Business

and Summary of

Significant Accounting

Policies” included in

Part II, Item

8 of this Form

10-K. Also, see

“Allowance for Credit

Losses for Loans

and Finance Leases”

below

for additional

information on

the weighting

of economic

scenarios to

estimate the

ACL, changes

in key

economic variables,

and the

ACL sensitivity analysis performed as of December 31, 2023.

Valuation

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

operations.

The

Corporation

holds

debt

and

equity

securities,

derivatives,

and

other

financial

instruments

fair

value.

The

Corporation’s

significant assets

reflected at

fair value

on a

recurring basis

on the

Corporation’s

financial statements

consisted

of available-for-sale

debt

securities

amounting

to $5.2

billion

as of

December 31,

2023.

In addition,

fair

value

is also

used

non-recurring

basis for

measuring the fair

value of assets such

as collateral dependent

loans, other real

estate owned (“OREO”)

properties, and loans

held for

sale.

Assets

and

liabilities

carried

fair

value

inherently

include

subjectivity

and

may

require

the

use

significant

assumptions,

adjustments

and

judgment

including,

among

others,

discount

rates,

cash

flows, default

rates, and

loss rates.

A significant

change

assumptions

may

result

significant

change

fair

value,

which

turn,

may

result

higher

degree

financial

statement

volatility

and

could

result

significant

impact

our

results

operations,

financial

condition

disclosures

fair

value

information.

The

fair value

of a

financial

instrument

is the

amount

that would

be received

sell an

asset or

paid

to transfer

liability

orderly transaction

between market

participants at

the measurement

date. The

Corporation categorizes

the fair

value of

its available-

for-sale

debt

securities

using

three-level

hierarchy

for

fair

value

measurements

that

distinguishes

between

market

participant

assumptions

developed

based

market

data

obtained

from

sources

independent

the

Corporation

(observable

inputs)

and

the

Corporation’s

own

assumptions

about

market

participant

assumptions

developed

based

the

best

information

available

the

circumstances

(unobservable

inputs).

The

hierarchy

inputs

used

determining

the

fair

value

maximizes

the

use

observable

inputs and

minimizes the

use of

unobservable inputs

by requiring

that observable

inputs be

used when

available. The

hierarchy level

assigned

to each

security

in the

Corporation’s

investment portfolio

was based

on management’s

assessment of

the transparency

and

reliability of the inputs used to estimate the fair values at the measurement

date.

The

fair

value

U.S.

Treasury

securities

included

as part

the

available-for-sale

debt

securities

portfolio

and

equity securities

with readily determinable fair values

was based on unadjusted quoted market

prices (Level 1). If quoted market prices

are unavailable,

the

fair

value

based

market

prices

for

comparable

assets

(as

the

case

with

mortgage-backed

securities

(“MBS”)

and

U.S.

agency

debt

securities)

that

are

based

observable

market

parameters,

including

benchmark

yields,

reported

trades,

quotes

from

brokers

dealers,

issuer

spreads,

bids,

offers,

and

reference

data,

including

market

research

operations,

when

available

(Level

2).

Observable prices

in the

market already

consider the

risk of

nonperformance. If

listed prices

or quotes

are not

available, fair

value is

based upon

discounted

cash flow

models

that use

unobservable

inputs due

to the

limited market

activity of

the instrument,

as is

the

case with private label MBS

held by the Corporation (Level 3).

Assets are classified in their entirety

based on the lowest level of

input

that is significant to their fair value measurement.

Private label MBS

are collateralized

by fixed-rate

mortgages on single-family

residential properties

in the U.S.

with original

FICO

scores

over

700

and

moderate

loan-to-value

ratios

(under

80%),

well

moderate

delinquency

levels.

The

interest

rate

these

securities

variable,

tied

3-month

CME

Term

Secured

Overnight

Financing

Rate

(“SOFR”)

plus

tenor

spread

adjustment

0.26161%

and

the

original

spread

limited

the

weighted-average

coupon

the

underlying

collateral.

The

market

valuation

represents

the estimated

net cash

flows over

the projected

life of

the pool

of underlying

assets applying

a discount

rate that

reflects

market observed

floating spreads

over SOFR,

with a

widening spread

based on

a nonrated

security.

The market

valuation

is derived

from a

model that

utilizes relevant

assumptions such

as the

prepayment rate,

default rate,

and loss

severity on

a loan

level basis.

The

Corporation

modeled

the

cash

flow

from

the

fixed-rate

mortgage

collateral

using

static

cash

flow

analysis

according

collateral

attributes of

the underlying mortgage

pool (

i.e.

, loan term,

current balance, note

rate, rate adjustment

type, rate adjustment

frequency,

rate caps,

and others)

in combination

with prepayment

forecasts based

on historical

portfolio

performance.

The Corporation

models

the variable cash flow of the security using the 3-month CME Term

SOFR forward curve.

Declines in fair

value that are

credit-related are

recorded on the

balance sheet

through an

ACL with a

corresponding adjustment

provision for credit losses and declines that are non-credit-related are

recognized through other comprehensive income (loss).

If the

Corporation intends

to sell a

debt security

in an

unrealized loss

position or

determines that

it is more

likely than

not that

the

Corporation will be

required to sell

a debt security

before it recovers

its amortized cost

basis, the debt

security is written

down to fair

value

through

earnings.

of December

31,

2023,

the

Corporation

did

not

intend

sell

any

debt

securities

unrealized

loss

position

and

not

likely

than

not

that

the

Corporation

will

required

sell any

debt

securities

before

recovery

their

amortized cost basis.

For

debt

securities

an unrealized

loss position

for

which the

Corporation

does not

intend

to sell

the debt

security

and

is not

more likely than

not that the

Corporation will be

required to sell

the debt security,

the Corporation determines

whether the loss

is due

credit-related

factors

non-credit-related

factors.

For

debt

securities

unrealized

loss

position

for

which

the

losses

are

determined to be

the result of both

credit-related and non-credit-related

factors, the credit loss

is determined as

the difference between

the present value of the cash flows expected to be collected, and the amortized

cost basis of the debt security.

Available-for-sale

debt securities

held by

the Corporation

at year-end

primarily consisted

of securities

issued by

U.S. government-

sponsored

entities (“GSEs”),

and

the aforementioned

private label

MBS. Given

the explicit

and

implicit guarantees

provided by

the

U.S. federal government, the Corporation believes the credit risk in

securities issued by the GSEs is low.

For the year ended December

31,

2023,

the

Corporation

determined

the

credit

losses

for

private

label

MBS

based

risk-adjusted

discounted

cash

flow

methodology that

considers qualitative

and quantitative

factors specific

to the

instruments, including

PDs and

LGDs that

considered,

among

other

things,

historical

payment

performance,

loan-to-value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables,

such

regional

unemployment

rates

and

the

housing

price

index.

Under

this

approach,

expected

cash

flows (interest and principal) were discounted at the U.S. Treasury

yield curve as of the reporting date.

See

Note

–

“Fair

Value”

the

audited

consolidated

financial

statements

included

Part

II,

Item

this

Form

10-K,

for

additional information.

Income Taxes

The Corporation is required to estimate income taxes in preparing

its consolidated financial statements. This involves the estimation

current

income

tax

expense

together

with

assessment

temporary

differences

between

the

carrying

amounts

assets

and

liabilities

for

financial

reporting

purposes

and

the

amounts

used

for

income

tax

purposes.

The

determination

current

income

tax

expense

involves

estimates

and

assumptions

that

require

the

Corporation

assume

certain

positions

based

its

interpretation

current tax regulations. Management assesses the relative benefits and

risks of the appropriate tax treatment of transactions, taking into

account statutory,

judicial and regulatory

guidance, and recognizes

tax benefits

only when deemed

probable. Changes

in assumptions

affecting estimates

may be required

in the future

and estimated tax

liabilities may need

to be increased

or decreased accordingly.

The

Corporation adjusts

the accrual

of tax

contingencies in

light of

changing facts

and circumstances,

such as

the progress

of tax

audits,

case law

and emerging

legislation. The

Corporation’s

effective tax

rate includes

the impact

of tax

contingencies and

changes to

such

accruals,

considered

appropriate

management.

When

particular

tax

matters

arise,

number

years

may

elapse

before

such

matters are

audited by

the taxing

authorities and

finally resolved.

Favorable resolution

of such matters

or the

expiration of

the statute

of limitations may result in the release of tax contingencies that the

Corporation recognizes as a reduction to its effective

tax rate in the

year of resolution.

Unfavorable settlement

of any particular

issue could increase

the effective

tax rate and

may require the

use of cash

in the year of resolution.

As of December 31,

2023, we had $150.1

million of deferred tax assets,

net of a related valuation

allowance of $139.2 million.

The

determination

deferred

tax

expense

benefit

based

changes

the

carrying

amounts

assets

and

liabilities

that

generate

temporary differences

and recognizes

enacted changes

in tax

rates and

laws in

the period

in which

they occur.

The carrying

value of

the Corporation’s net deferred tax

asset assumes that the Corporation will be able to generate sufficient

future taxable income based on

estimates and

assumptions. Valuation

allowances are

established, when

necessary,

to reduce

deferred tax

assets to

the amount

that is

more likely than not to be realized.

The determination of whether a valuation

allowance for deferred tax assets is appropriate

is subject

considerable

judgment

and

requires

the

evaluation

positive

and

negative

evidence

that

can

objectively

verified.

Positive

evidence

necessary

overcome

the

negative

evidence

includes

whether

future

taxable

income

sufficient

amounts

and

character

within the carryforward periods is

available under the tax law.

Consideration must be given to

all sources of taxable income including,

applicable,

the

future

reversal

existing

temporary

differences,

future

taxable

income

forecasts

exclusive

the

reversal

temporary differences and

carryforwards, and tax planning

strategies. When negative evidence (e.g.,

cumulative losses in recent

years,

history

of operating

loss or

tax credit

carryforwards

expiring

unused)

exists, more

positive

evidence

than negative

evidence

will be

necessary.

The Corporation

has concluded

that based on

the level

of positive

evidence, it

is more

likely than

not that

the deferred

tax

asset will be realized, net of the existing valuation allowances

at December 31, 2023 and 2022. However,

there is no guarantee that the

tax benefits associated

with the deferred

tax assets will be

fully realized. The

positive evidence considered

by management in

arriving

at its

conclusion included

factors such

as the

following:

FirstBank’s

three-year cumulative

income position;

and sustained

periods of

profitability;

management’s

proven

ability

forecast

future

income

accurately

and

execute

tax

strategies.

The

negative

evidence

considered by management

included the following: uncertainties

about the state of

the Puerto Rico economy,

including considerations

relating to the pandemic

recovery funds together with

Puerto Rico government debt

restructuring and the ultimate

sustainability of the

latest fiscal plan certified by the Puerto Rico Oversight, Management,

and Economic Stability Act (“PROMESA”) oversight board.

See Note 22

– “

Income Taxes

”

to the audited consolidated financial statements included

in Part II, Item 8 on Form 10-K for further

information related to income taxes.

OTHER ESTIMATES

In addition

to the

critical accounting

estimates we

make in connection

with the

ACL, fair

value measurements,

and the accounting

for income

taxes, the

use of

estimates and

assumptions is

also important

in determining

the accounting

for goodwill

and identifiable

intangible

assets,

pension

and

postretirement

benefit

obligations,

and

provisions

for

losses

that

may

arise

from

litigation

and

regulatory proceedings (including governmental investigations).

Goodwill is

assessed for

impairment at

least annually

and more

frequently if

circumstances exist

that indicate

a possible

reduction

in the

fair value

of a

reporting unit

below its

carrying value.

When assessing

goodwill for

impairment, first,

a qualitative

assessment

can be

made to

determine whether

it is

more likely

than not

that the

estimated fair

value of

a reporting

unit is

less than

its estimated

carrying value. If

the results of the

qualitative assessment are

not conclusive, a

quantitative goodwill test

is performed. Estimating

the

fair

value

our

reporting

units

requires

judgment.

Critical

inputs

the

fair

value

estimates

may

include

projected

earnings,

macroeconomic conditions, interest

rate levels, and peers

performance. See Note 1 –

“Nature of Business and

Summary of Significant

Accounting Policies” and

Note 9 – “Goodwill

and Other Intangibles”

to the audited

consolidated financial statements

included in Part

II, Item 8 of this Form

10-K for further information about

goodwill and identifiable intangible

assets. Based on our annual

impairment

qualitative analysis

of goodwill

conducted in

the fourth quarter

of 2023,

it was determined

that it

is more-likely-than-not

that the

fair

value of the reporting units exceeded their carrying value; therefore, goodwill is considered

not impaired.

Identifiable

intangible

assets

are

tested

for

impairment

when

events

changes

circumstances

suggest

that

asset’s

asset

group’s

carrying

value

may

not

fully

recoverable.

Judgment

required

evaluate

whether

indications

potential

impairment

have

occurred,

and

test intangible

assets for

impairment,

required.

impairment

is recognized

the

estimated

undiscounted

cash flows

relating to

the asset

or asset

group is

less than

the corresponding

carrying value.

The amortization

of identified

intangible

assets

based

upon

the

estimated

economic

benefits

received

over

their

economic

life,

which

also

subjective.

Customer

attrition rates that are based on historical experience are used to determine the

estimated economic life of intangibles assets.

The

Corporation

maintains

two

frozen

qualified

noncontributory

defined

benefit

pension

plans,

and

complementary

postretirement

benefits

plan

covering

medical benefits

and

life insurance

after retirement.

Calculation

of the

obligations

and

expenses

under

these

plans

requires

the

use

actuarial

valuation

methods

and

assumptions,

which

are

subject

management

judgment

and may

differ

if different

assumptions are

used. The

discount rate

assumption used

to measure

the postretirement

benefit

obligation

is estimated

as the

single equivalent

rate such

that the

present

value of

the plan’s

projected

benefit obligation

cash flows

using

the

single

rate

equals

the

present

value

those

cash

flows

using

the

above

mean

actuarial

yield

curves.

See

Note

–

“Employee

Benefit

Plans”

the

audited

consolidated

financial

statements

included

Part

II,

Item

this

Form

10-K,

for

disclosures related to the benefit plans.

As necessary,

also estimate

and

provide

for potential

losses that

may

arise out

of litigation

and

regulatory

proceedings to

the

extent

that

such losses

are

probable

and

can be

reasonably

estimated.

Judgment

is required

in making

these

estimates

and

our

final

liabilities may

ultimately be

materially different.

Our total

estimated liability

with respect

to litigation

and regulatory

proceedings is

determined on

a case-by-case basis

and represents

an estimate

of probable

losses after

considering, among

other factors,

the progress

of each case, our experience and the experience of

others in similar cases, proceedings or investigations, and

the opinions and views of

legal counsel.

The outcomes

of legal

actions are

unpredictable and

subject to

significant uncertainties,

and it

is inherently

difficult to

determine whether any loss is probable or even

possible. It is also inherently difficult to estimate

the amount of any loss and there may

be matters for which

a loss is probable or

reasonably possible but not currently

estimable. Accordingly,

actual losses may be in

excess

the

established

accrual

the

range

reasonably

possible

loss.

See

Note

–

“Regulatory

Matters,

Commitments

and

Contingencies”

to the audited consolidated financial statements included in Part II,

Item 8 of this Form 10-K.

RESULTS

OF OPERATIONS

Net Interest Income

Net interest

income is

the excess of

interest earned

by First

BanCorp. on

its interest-earning

assets over

the interest

incurred on its

interest-bearing

liabilities.

First

BanCorp.’s

net

interest

income

subject

interest

rate

risk

due

the

repricing

and

maturity

mismatch

the

Corporation’s

assets

and

liabilities.

addition,

variable

sources

interest

income,

such

loan

fees,

periodic

dividends, and

collection of

interest in

nonaccrual loans,

can fluctuate

from period

to period.

Net interest

income for

the year

ended

December 31, 2023 was

$797.1 million, compared

to $795.3 million for

the year ended December

31, 2022. On a tax-equivalent

basis

and excluding

the changes

in the

fair value

of derivative

instruments, net

interest income

for the

year ended

December 31,

2023 was

$818.0 million, compared to $828.4 million for the year ended December

31, 2022.

The

following

tables

include a

detailed

analysis

of net

interest income

for

the indicated

periods.

Part I

presents

average volumes

(based

the

average

daily

balance)

and

rates

adjusted

tax-equivalent

basis

and

Part

presents,

also

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

changes

(i)

volume

(changes

volume

multiplied

prior

period

rates),

and

(ii)

rate

(changes

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

adjusted

tax

equivalent

basis and

excluding

the

change

the fair

value

of derivative

instruments

is a

non-GAAP

financial

measure.

For

the

definition

this

non-GAAP

financial

measure,

refer

the

discussion

“Non-GAAP

Financial Measures and Reconciliations” above.

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Year Ended December

31,

2023

2022

2021

2023

2022

2021

2023

2022

2021

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

584,083

1,156,127

2,012,617

30,419

11,791

2,662

5.21

1.02

0.13

Government obligations

(2)

2,843,284

2,870,889

2,065,522

40,314

39,033

27,058

1.42

1.36

1.31

MBS

3,702,908

4,052,660

4,064,343

67,641

85,090

57,159

1.83

2.10

1.41

FHLB stock

36,606

20,419

28,208

2,799

1,114

1,394

7.65

5.46

4.94

Other investments

14,167

12,747

10,254

490

126

3.46

0.99

0.59

Total investments

(3)

7,181,048

8,112,842

8,180,944

141,663

137,154

88,334

1.97

1.69

1.08

Residential mortgage loans

2,814,102

2,886,594

3,277,087

160,009

160,359

177,747

5.69

5.56

5.42

Construction loans

172,952

121,642

181,470

14,811

7,350

12,766

8.56

6.04

7.03

C&I and commercial mortgage loans

5,244,503

5,092,638

5,228,150

365,185

281,486

261,333

6.96

5.53

5.00

Finance leases

789,870

636,507

518,757

60,909

46,842

38,532

7.71

7.36

7.43

Consumer loans

2,704,877

2,461,632

2,207,685

301,756

262,542

239,725

11.16

10.67

10.86

Total loans

(4)(5)

11,726,304

11,199,013

11,413,149

902,670

758,579

730,103

7.70

6.77

6.40

Total interest-earning assets

18,907,352

19,311,855

19,594,093

1,044,333

895,733

818,437

5.52

4.64

4.18

Interest-bearing liabilities:

Time deposits

2,590,313

2,213,145

2,636,303

68,605

18,102

26,138

2.65

0.82

0.99

Brokered CDs

348,829

69,694

141,959

16,630

1,500

2,982

4.77

2.15

2.10

Other interest-bearing deposits

7,664,793

8,279,320

8,162,280

100,226

26,759

12,362

1.31

0.32

0.15

Securities sold under agreements to repurchase

54,570

194,948

300,482

2,769

7,555

9,963

5.07

3.88

3.32

Advances from the FHLB

541,000

179,452

354,055

24,608

5,136

8,199

4.55

2.86

2.32

Other borrowings

171,184

184,173

183,762

13,538

8,269

5,135

7.91

4.49

2.79

Total interest-bearing liabilities

11,370,689

11,120,732

11,778,841

226,376

67,321

64,779

1.99

0.61

0.55

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

817,957

828,412

753,658

Interest rate spread

3.53

4.03

3.63

Net interest margin

4.33

4.29

3.85

(1)

On an adjusted tax-equivalent basis. The Corporation estimated the

adjusted tax-equivalent yield by dividing the interest rate

spread on exempt assets by 1 less the Puerto Rico statutory

tax rate of

37.5% and adding to it the cost of interest-bearing liabilities.

The tax-equivalent adjustment recognizes the income tax savings

when comparing taxable and tax-exempt assets. Management

believes

that it is a standard practice in the banking industry to present net

interest income, interest rate spread and net interest

margin on a fully tax-equivalent basis. Therefore, management believes

these

measures provide useful information to investors by allowing

them to make peer comparisons. The Corporation excludes

changes in the fair value of derivatives from interest income

because the

changes in valuation do not affect interest received.

See "Non-GAAP Financial Measures and Reconciliations" above.

(2)

Government obligations include debt issued by government-sponsored

agencies.

(3)

Unrealized gains and losses on available-for-sale debt securities

are excluded from the average volumes.

(4)

Average loan balances include

the average of nonaccrual loans.

(5)

Interest income on loans includes $11.9 million,

$11.2 million and $10.5 million for the years

ended December 31, 2023, 2022 and 2021, respectively,

of income from prepayment penalties and late

fees related to the Corporation’s loan portfolio.

Part II

Year Ended December 31,

2023 Compared to 2022

2022 Compared to 2021

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

(17,813)

36,441

18,628

(4,934)

14,063

9,129

Government obligations

(382)

1,663

1,281

10,914

1,061

11,975

MBS

(6,963)

(10,486)

(17,449)

(205)

28,136

27,931

FHLB stock

1,118

567

1,685

(405)

125

(280)

Other investments

348

364

Total investments

(24,024)

28,533

4,509

5,387

43,433

48,820

Residential mortgage loans

(4,075)

3,725

(350)

(21,437)

4,049

(17,388)

Construction loans

3,751

3,710

7,461

(3,793)

(1,623)

(5,416)

C&I and commercial mortgage loans

8,618

75,081

83,699

(7,132)

27,285

20,153

Finance leases

11,737

2,330

14,067

8,706

(396)

8,310

Consumer loans

26,758

12,456

39,214

27,330

(4,513)

22,817

Total loans

46,789

97,302

144,091

3,674

24,802

28,476

Total interest income

22,765

125,835

148,600

9,061

68,235

77,296

Interest expense on interest-bearing liabilities:

Time deposits

3,574

46,929

50,503

(3,844)

(4,192)

(8,036)

Brokered CDs

11,608

3,522

15,130

(1,537)

(1,482)

Other interest-bearing deposits

(5,011)

78,478

73,467

180

14,217

14,397

Securities sold under agreements to repurchase

(6,282)

1,496

(4,786)

(3,795)

1,387

(2,408)

Advances from the FHLB

15,066

4,406

19,472

(4,520)

1,457

(3,063)

Other borrowings

(805)

6,074

5,269

3,125

3,134

Total interest expense

18,150

140,905

159,055

(13,507)

16,049

2,542

Change in net interest income

4,615

(15,070)

(10,455)

22,568

52,186

74,754

Portions

the

Corporation’s

interest-earning

assets,

mostly

investments

obligations

some

U.S.

government

agencies

and

GSEs, generate

interest that

is exempt

from income

tax, principally

in Puerto

Rico. Also,

interest and

gains on

sales of

investments

held by

the Corporation’s

international banking

entities (“IBEs”)

are tax-exempt

under Puerto

Rico tax

law (see

Note 22

– “Income

Taxes”

to the audited

consolidated financial

statements herein

for additional

information). Management

believes that the

presentation

interest

income

adjusted

tax-equivalent

basis

facilitates

the

comparison

all

interest

data

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

the

average

cost

interest-bearing

liabilities.

The

computation

considers

the

interest

expense

disallowance required by Puerto Rico tax law.

Management

believes

that

the

presentation

net

interest

income,

excluding

the

effects

the

changes

the

fair

value

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

adjusted

tax-equivalent

basis

for

the

indicated

periods.

The

table

also

reconciles

net

interest

spread

and

net

interest margin on a GAAP basis to these items excluding valuations, and

on an adjusted tax-equivalent basis:

Year Ended December 31,

2023

2022

2021

(Dollars in thousands)

Interest income - GAAP

1,023,486

862,614

794,708

Unrealized loss (gain) on derivative instruments

(30)

(24)

Interest income excluding valuations - non-GAAP

1,023,494

862,584

794,684

Tax-equivalent adjustment

20,839

33,149

23,753

Interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

1,044,333

895,733

818,437

Interest expense - GAAP

226,376

67,321

64,779

Net interest income - GAAP

797,110

795,293

729,929

Net interest income excluding valuations - non-GAAP

797,118

795,263

729,905

Net interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

817,957

828,412

753,658

Average Balances

Loans and leases

11,726,304

11,199,013

11,413,149

Total securities, other short-term investments and interest-bearing

cash balances

7,181,048

8,112,842

8,180,944

Average Interest-Earning Assets

18,907,352

19,311,855

19,594,093

Average Interest-Bearing Liabilities

11,370,689

11,120,732

11,778,841

Average Assets

18,706,423

19,378,649

20,303,033

Average Non-Interest-Bearing Deposits

5,741,345

6,391,171

6,063,715

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.41%

4.47%

4.06%

Average rate on interest-bearing liabilities - GAAP

1.99%

0.61%

0.55%

Net interest spread - GAAP

3.42%

3.86%

3.51%

Net interest margin - GAAP

4.22%

4.12%

3.73%

Average yield on interest-earning assets excluding valuations

- non-GAAP

5.41%

4.47%

4.06%

Average rate on interest-bearing liabilities

1.99%

0.61%

0.55%

Net interest spread excluding valuations

- non-GAAP

3.42%

3.86%

3.51%

Net interest margin excluding valuations - non-GAAP

4.22%

4.12%

3.73%

Average yield on interest-earning assets on a tax-equivalent

basis and excluding valuations

non-GAAP

5.52%

4.64%

4.18%

Average rate on interest-bearing liabilities

1.99%

0.61%

0.55%

Net interest spread on a tax-equivalent basis

and excluding valuations - non-GAAP

3.53%

4.03%

3.63%

Net interest margin on a tax-equivalent basis and excluding

valuations - non-GAAP

4.33%

4.29%

3.85%

Net interest income amounted to $797.1 million for

the year ended December 31, 2023, an increase of $1.8

million, when compared

to $795.3 million for same period in 2022. The $1.8 million increase in net interest

income was primarily due to:

●

A $142.7 million increase in interest income on loans consisting of:

An $89.0 million increase in interest

income on commercial and construction loans,

driven by the effect of higher

market

interest

rates

the

upward

repricing

variable-rate

loans

and

new

loan

originations

and,

lesser

extent,

increase of

$259.0 million

in the

average balance

of this

portfolio (excluding

Small Business

Administration

Paycheck

Protection

Program

(“SBA

PPP”)

loans).

These

variances

were

partially

offset

$7.6

million

reduction

interest

income from SBA PPP loans.

December

31,

2023,

the

interest

rate

approximately

55%

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

based

other

indexes.

For

the

year

ended

December

31,

2023,

the

average

one-month

SOFR

increased

321

basis points,

the average

three-month SOFR

increased 298

basis points,

and the

average Prime

rate increased

333 basis

points, compared to the average rates for such indexes for the year

ended December 31, 2022.

$53.3

million

increase

interest

income

consumer

loans

and

finance

leases,

driven

increase

$396.6

million in the average balance of this portfolio and, to a lesser extent, the upward repricing

of the credit cards portfolio.

$0.4

million

increase

interest

income

residential

mortgage

loans,

driven

the

positive

effect

new

loan

originations at higher current market

interest rates, partially offset by

a decline of $72.5 million in the

average balance of

this portfolio.

●

An $18.2 million increase in interest income from interest-bearing cash

balances and investment securities, consisting of:

$18.6

million

increase

interest

income

from

interest-bearing

cash

balances,

which

consisted

primarily

cash

balances

deposited

the

FED,

mainly

associated

with

the

effect

higher

market

interest

rates,

partially

offset

decline of $572.0 million in the average balance.

A $2.1 million

increase in dividend

income on equity

securities, of which

$1.7 million was

associated with income

from

FHLB stock.

Partially offset by:

$2.5

million

net

decrease

interest

income

debt

securities,

including

net

decrease

$4.5

million

U.S.

government

and

agencies

debt

securities

and

MBS

driven

net

decline

$343.1

million

the

average

balance,

partially

offset

increase

$2.0

million

interest

income

Puerto

Rico

municipal

bonds

that

was

mainly

attributable to the upward repricing of variable-rate bonds.

Partially offset by:

●

A $139.1 million increase in interest expense on interest-bearing deposits, consisting

of:

A $73.5 million

increase in interest

expense on interest-bearing

checking and saving

accounts, mainly driven

by a $76.5

million

increase

associated

with

higher

interest

rates

paid

2023

result

the

overall

higher

interest

rate

environment, partially offset

by a $2.9 million decrease

resulting from a $614.5 million

decline in the average balance

these deposits. The

average cost of

interest-bearing checking

and saving

accounts increased by

99 basis points

to 1.31%

for

2023

as compared

to 0.32

for

2022,

mostly driven

by government

deposits in

the Puerto

Rico

region.

Excluding

government deposits, the

average cost of

interest-bearing checking

and savings accounts

for 2023 was

0.68%, compared

to 0.26%

for 2022.

$50.5

million

increase

interest

expense

time

deposits,

excluding

brokered

CDs,

which

$46.9

million

was

higher

rates

paid

2023

new

issuances

and

renewals

also

associated

with

the

higher

interest

rate

environment. The

average cost

of time

deposits for

2023, excluding

brokered CDs,

increased 183

basis points

to 2.65%

when compared

to 2022. Excluding

public sector time

deposits, the average

cost of non-brokered

time deposits for

2023

increased 177 basis points

to 2.61% when compared

to 2022, reflecting the

effect of customers

allocating more cash into

higher yielding alternatives.

A $15.1

million increase

in interest

expense on

brokered CDs,

driven by

the increase

of $279.1

million increase

in the

average balance.

●

A $20.0 million net increase in interest expense on borrowings, consisting

of:

A $19.5

million increase

in interest

expense on

advances from

the FHLB,

associated with

a $361.5

million increase

the average balance.

$5.3

million

increase

interest

expense

other

borrowings,

mainly

driven

the

upward

repricing

junior

subordinated debentures,

partially offset by a reduction in the average balance.

Partially offset by:

A $4.8 million

decrease in interest

expense on repurchase

agreements, driven

by a $6.3 million

decrease associated with

a $140.4 million decline in the average balance, partially offset

by a $1.5 million increase associated with new short-term

repurchase agreements entered into during 2023 at higher interest rates.

Net interest

margin increased

by 10

basis points

to 4.22%

for 2023,

compared to

4.12% for

2022. The

net interest

margin increase

primarily

reflects

the

higher

interest

rate

environment,

driving

the

upward

repricing

variable-rate

commercial

loans,

and

higher

yields earned

on new

loan originations.

The net

interest margin

also benefited

from an

improved earnings

-asset mix

reflected in

the

growth

of higher

yielding

commercial and

consumer

loans. These

factors

were partially

offset

by an

increase in

the average

cost of

interest-bearing

liabilities, mainly

reflecting the

effect of

higher rates

paid on

deposits, and

a continued

migration from

non-interest-

bearing and other low-cost deposits to higher-cost deposits.

Provision for Credit Losses

The provision

for credit

losses for

loans and

finance leases

was $66.6

million for

the year

ended December

31, 2023,

compared to

$25.7 million for the year ended December 31, 2022. The variances by

major portfolio category were as follows:

●

Provision

for credit

losses for

the consumer

loan and

finance lease

portfolios

was an

expense of

$67.8

million for

the year

ended

December

31,

2023,

compared

to an

expense

$57.5

million

for

the

year

ended

December

31,

2022.

The increase

primarily

reflects

the

increases

the

size

the

consumer

loan

portfolios

coupled

with

higher

delinquency

and

historical

charge-off

levels in

all major

portfolio

classes, partially

offset by

improvements

in the

forecasted macroeconomic

variables

such as the regional unemployment rate and retail sales in the case of credit

cards.

●

Provision

for credit

losses for

the commercial

and

construction loan

portfolios

was an

expense of

$5.7 million

for the

year

ended

December

31,

2023,

compared

net

benefit

$23.1

million

for

year

ended

December

31,

2022.

The

expense

recognized during 2023

was mainly due

to the increase

in the size of

the commercial and

construction loan portfoli

os, a $6.0

million charge

associated with

a nonaccrual

C&I participated

loan in

the Florida

region in

the power

generation industry,

$1.7 million

incremental reserve recorded

during 2023

associated with the

inflow to nonaccrual

status of a

$9.5 million

C&I

loan in the Puerto

Rico region, and a $1.0

million charge-off recorded

on a nonaccrual commercial

mortgage loan transferred

to OREO during 2023, partially offset

by an improvement on the economic outlook

of certain macroeconomic variables, such

as the unemployment

rate. Meanwhile, the

net benefit recorded during

2022 mainly reflects reductions

in qualitative reserves

associated with

reduced

COVID-19

uncertainties,

partially

offset

by loan

growth

and a

less favorable

economic

outlook of

certain macroeconomic variables, such as the CRE price index.

●

Provision

for

credit

losses

for

the

residential

mortgage

loan

portfolio

was

net

benefit

$6.9

million

for

the

year

ended

December

31,

2023,

compared

net

benefit

$8.7

million

for

the

year

ended

December

31,

2022.

The

net

benefit

recorded during 2023 was primarily

related to updated macroeconomic variables,

such as the Regional Home Price Index

and

the unemployment rate, partially offset by newly originated

loans which have a longer life.

Provision for credit losses for

unfunded loan commitments

The

provision for

credit losses

for unfunded

commercial

and construction

loan commitments

and standby

letters of

credit

was an

expense

$0.4

million

for

the

year

ended

December

31,

2023,

compared

$2.7

million

for

year

ended

December

31,

2022.

The

expense

recorded

during

2022

was

mainly

driven

increase

unfunded

loan

commitments

principally

due

then

newly

originated facilities which remained undrawn as of December 31, 2022.

Provision for credit losses for

held-to-maturity and available-for-sale debt

securities

The provision

for credit

losses for

held-to-maturity

debt securities

was a

net benefit

of $6.1

million for

the year

ended December

31,

2023,

compared

net benefit

$0.3

million

for

year

ended

December

31,

2022.

The

net

benefit

recorded

during

2023

was

mostly

driven

the

refinancing

$46.5

million

municipal

bond

into

shorter-term

commercial

loan

structure

and,

lesser

extent, a reduction in qualitative reserves driven by updated financial information

of certain bond issuers received during 2023.

The provision

for credit

losses for

available-for-sale

debt securities

was an

expense of

$20 thousand

for the

year ended

December

31, 2023, compared to a net benefit of $0.4 million for the year ended December

31, 2022.

Non-Interest Income

Non-interest income

for the

year ended

December 31,

2023 amounted

to $132.7

million, compared

to $123.1

million for

the same

period

2022.

Non-interest

income

for

the

year

ended

December

31,

2023

includes

the $3.6

million

gain

recognized

from

legal

settlement,

included

as part

“Other

non-interest

income,”

and

the

$1.6

million

gain

the

repurchase

$21.4

million

junior

subordinated

debentures,

reported

“Gain

early

extinguishment

debt.”

See

“Non-GAAP

Financial

Measures

and

Reconciliations” above

for additional

information.

On a

non-GAAP basis,

excluding the

effect

of these

Special Items,

adjusted non-

interest income increased by $4.4 million primarily due

to:

●

$6.3 million

net increase

in adjusted

other non-interest

income including:

(i) a

$2.6 million

increase in

net gains

from

sales of

fixed assets,

of which

$3.0 million

was related

to the

sale of

a banking

premise in

the Florida

region; (ii)

a $1.4

million increase

related to higher

benefit recognized

in relation to

purchased income

tax credits realized;

(iii) $0.8

million

debit

card

incentives

collected

during

2023;

(iv)

$0.5

million

decrease

unrealized

losses

marketable

equity

securities; (v)

a $0.

million

increase related

to higher

unused loan

commitment

fees; and

(vi) $0.4

million

in insurance

proceeds received during 2023.

●

$3.5

million

increase

card

and

processing

income

mainly

interchange

income

higher

transactional

volumes.

Partially offset by:

●

A $4.7 million decrease

in revenues from mortgage

banking activities, mainly driven

by a decrease in the

net realized gain

on sales

of residential

mortgage loans

in the

secondary market

due to

a lower

volume of

sales and

lower margins.

During

2023

and

2022,

net

gains

$3.3

million

and

$8.4

million,

respectively,

were

recognized

result

GNMA

securitization

transactions

and

whole

loan

sales

U.S.

GSEs

amounting

$155.2

million

and

$238.3

million,

respectively.

●

A $0.9 million decrease in insurance commission income.

Non-Interest Expenses

Non-interest expenses for

the year ended December

31, 2023 amounted to $471.4

million, compared to $443.1

million for the same

period

2022.

The

efficiency

ratio

for

the

year

ended

December

31,

2023

was

50.70%,

compared

48.25%

for

the

year

ended

December

31,

2022.

Non-interest

expenses

for

the year

ended

December

31,

2023

include the

FDIC special

assessment

expense

$6.3

million.

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

above

for

additional

information.

non-GAAP

basis,

excluding the effect of this Special Item, adjusted non-interest

expenses

increased by $22.0 million primarily due to:

●

$16.8

million

increase

employees’

compensation

and

benefits

expenses,

mainly

driven

annual

salary

merit

increases and minimum wage adjustments,

and increases

in bonuses accruals,

medical insurance premium costs, and stock-

based compensation expense; partially offset by higher

deferral of loan origination costs.

●

$3.3 million increase in credit and debit card processing expenses, mainly

driven by higher transactional volumes.

●

A $3.0

million

increase

in other

non-interest

expenses,

mainly

due

to an

increase

of $1.8

million

in net

periodic

cost of

pension plans and a $0.8 million increase in charges for legal and

operational reserves.

●

$2.4

million

increase

the

adjusted

FDIC deposit

insurance

expense,

driven

the two

basis points

increase

the

initial base deposit insurance assessment rate that came into effect

during the first quarter of 2023.

●

A $1.4

million increase

in business

promotion

expenses, mainly

as a

result of

a $0.9

million increase

in sponsorship

and

public relations activities and a $0.7

million increase in marketing and advertising expenses.

●

$1.0 million increase

in taxes, other than

income taxes, primarily

related to higher municipal

license taxes and sales

and

use taxes.

Partially offset by:

●

$2.4

million

decrease

occupancy

and

equipment

expenses,

primarily

reflecting

reductions

depreciation

charges,

rental expenses, and energy costs,

partially offset by an increase in maintenance charges

and property taxes.

●

$2.0 million

decrease

in professional

service fees,

in part

due

to a

reduction of

$0.8 million

in collections,

appraisals,

and other credit-related fees.

●

$1.3

million

increase

net

gains

OREO

operations,

mainly

driven

$0.9

million

decrease

property

values

write-downs and a $0.7

million increase in net

realized gains on

sales of OREO properties

primarily residential properties

in the Puerto Rico region.

Income Taxes

For

the

year

ended

December

31,

2023,

the

Corporation

recorded

income

tax

expense

$94.6

million,

compared

$142.5

million

for

the

same

period

2022.

The

decrease

income

tax

expense

for

2023,

compared

the

same

period

2022,

was

mainly

driven

lower

effective

tax

rate

and

lower

pre-tax

income.

The

reduction

the

effective

tax

rate

was

due

increased

business

activities

with

preferential

tax

treatment

under

the

Puerto

Rico

tax

code,

which

resulted

additional

deductions

the

banking subsidiary,

as well as a higher proportion of exempt income to taxable income.

The

Corporation’s

annual

effective

tax

rate

for

the

year

ended

December

31,

2023,

excluding

entities

from

which

tax

benefit

cannot

recognized

and

discrete

items,

was

23.5%,

compared

31.2%

for

2022.

The

effective

tax

rate

the

Corporation

impacted

by,

among other

things, the

composition

and

source of

its taxable

income.

Based on

current strategies,

we expect

that

the

effective tax

rate for

2024 will

be around

the same

levels of

2023. See

Note 22 -

Income Taxes,

to the

audited consolidated

financial

statements included in Part II, Item 8 of this Form 10-K, for additional information

December

31,

2023,

the

Corporation

had

deferred

tax

asset

$150.1

million,

net

valuation

allowance

$139.2

million

against

the

deferred

tax

asset,

compared

deferred

tax

asset

$155.6

million,

net

valuation

allowance

$185.5

million, as

of December

31, 2022.

The reduction

in the

valuation allowance

was related

primarily

to changes

in the

market value

available-for-sale debt

securities and

the expiration

of capital

losses, both

which resulted

in an

equal change

in the

deferred tax

asset

without impacting

earnings. Income

tax paid

for the

year ended

December 31,

2023 amounted

to $109.5

million, compared

to $51.8

million

2022.

The

increase

the

full

utilization

during

2022

certain

deferred

tax

assets

NOLs

that

were

available for regular income tax which decreased the amount due for income

taxes.

OPERATING SEGMENTS

Based

upon

the

Corporation’s

organizational

structure

and

the

information

provided

the

Chief

Executive

Officer

and

management of the Corporation, the

operating segments are based primarily on

the Corporation’s

lines of business for its operations in

Puerto Rico,

the Corporation’s

principal market,

and by

geographic areas

for its

operations outside

of Puerto

Rico. As

of December

31,

2023, the

Corporation had

six reportable

segments: Commercial

and

Corporate

Banking; Consumer

(Retail) Banking;

Mortgage

Banking; Treasury

and Investments; United

States Operations; and

Virgin

Islands Operations.

Management determined the

reportable

segments based on the

internal structure used to

evaluate performance and to

assess where to allocate resources.

Other factors, such as

the Corporation’s

organizational chart,

nature of the

products, distribution

channels, and

the economic

characteristics of the

products,

were also considered in the determination of the reportable

segments. For additional information regarding First BanCorp.’s

reportable

segments, please

refer to

Note 27,

“Segment Information”

to the

audited consolidated

financial statements

included in

Item 8

of this

Form 10-K.

The

accounting

policies

the

segments

are

the

same

those

described

Note

“Nature

Business

and

Summary

Significant

Accounting

Policies”

the

audited

consolidated

financial

statements

included

Item

this

Form

10-K.

The

Corporation

evaluates

the

performance

the

segments

based

net

interest

income,

the

provision

for

credit

losses,

non-interest

income,

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

the

average

volume

their

interest-earning

assets, less the ACL. For

the years ended December

31, 2023 and 2022, other

operating expenses not allocated

to a particular segment

amounted

to $168.7

million and

$155.3 million,

respectively.

Expenses pertaining

to corporate

administrative

functions that

support

the operating

segment

but are

not specifically

attributable

to or

managed by

any segment,

are not

included

in the

reported

financial

results of the

operating segments. The

unallocated corporate

expenses include certain

general and administrative

expenses and related

depreciation and amortization expenses.

The

Treasury

and

Investments

segment

lends

funds

the

Consumer

(Retail)

Banking,

Mortgage

Banking,

Commercial

and

Corporate

Banking and

United States

Operations segments

to finance

their lending

activities and

borrows from

those segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds

other

segments.

The

Corporation

allocates

the

interest

rates

charged

credited by the

Treasury and

Investment and the

Consumer (Retail) Banking

segments based on

market rates. The

difference between

the

allocated

interest

income

expense

and

the

Corporation’s

actual

net

interest

income

from

centralized

management

funding

costs is reported in the Treasury and Investments segment

Commercial and Corporate Banking

The

Commercial

and

Corporate

Banking

segment

consists

the

Corporation’s

lending

and

other

services

for

large

customers

represented

by specialized

and middle-market

clients and

the public

sector.

The Commercial

and Corporate

Banking segment

offers

commercial

loans, including

commercial real

estate and

construction loans,

as well

as other

products, such

as cash

management

and

business management

services. A

substantial portion

of the

commercial and

corporate banking

portfolio is

secured by

the underlying

real estate

collateral

and

the personal

guarantees

of the

borrowers. Since

commercial

loans involve

greater

credit risk

than

a typical

residential mortgage

loan because

they are

larger in

size and

more risk

is concentrated

in a

single borrower,

the Corporation

has and

maintains a credit

risk management infrastructure

designed to mitigate

potential losses associated

with commercial

lending, including

underwriting and loan review functions, sales of loan participations, and

continuous monitoring of concentrations within portfolios.

Segment

income

before taxes

for

the year

ended December

31,

2023 decreased

to $42.4

million,

compared

to $111.1

million

for

2022.

The highlights

of the

Commercial and

Corporate

Banking segment’s

financial results

for

the years

ended December

31, 2023

and 2022 include the following:

●

Net interest income for

the year ended December

31, 2023 was $54.7

million, compared to

$109.8 million for 2022.

The

decrease

net

interest

income

was

primarily

attributable

increase

the

cost

funds

charged

this

segment,

resulting from

higher market

interest rates,

that exceeded

the effect

of the

upward repricing

of variable-rate

commercial

and construction loans and higher average loan balances.

●

For 2023, the

provision for credit

losses was a net

benefit of $6.2

million, compared to

a net benefit of

$20.2 million for

2022.

The

net

benefit

recorded

during

2023

mainly

reflects

favorable

economic

outlook

the

projection

certain

macroeconomic

variables such

as the

unemployment rate,

partially offset

by a

$1.7 million

incremental

reserve

recorded

during

2023

associated

with

the

inflow

nonaccrual

status

$9.5

million

C&I

loan

and

$1.0

million

charge-off

recorded on

a nonaccrual

commercial

mortgage loan

transferred

to OREO

during

2023. Meanwhile,

the net

benefit

recorded

2022

mainly

reflects

reductions

qualitative

reserves

associated

with

reduced

uncertainties

regarding

the

economic

impact

the

COVID-19

pandemic,

particularly

loans

the

hotel,

transportation

and

entertainment

industries,

partially

offset

loan

growth

and

less

favorable

economic

outlook

the

projection

certain forecasted macroeconomic variables, such as the CRE price index.

●

Total

non-interest income

for the

year ended

December 31,

2023 amounted

to $21.3

million compared

to $18.2

million

for

2022.

The

increase

non-interest

income

was

mainly

the

aforementioned

$3.6

million

gain

recognized

from a legal settlement related to a commercial relationship which was settled and

collected in 2023.

●

Direct non-interest

expenses for

the year

ended December

31, 2023

were $39.7

million, compared

to $37.1

million for

2022.

The

increase

due

$2.9

million

increase

the

FDIC

deposit

insurance

expense

allocated

this

segment

driven

the

aforementioned

FDIC

special

assessment

expense

and

the

two

basis

points

increase

the

initial

base

deposit insurance

assessment rate

that came

into effect

during the

first quarter

of 2023;

a $0.6

million increase

in taxes,

other

than

income

taxes,

primarily

higher

municipal

license

taxes;

and

$0.4

million

increase

business

promotion expenses

mainly in sponsorship

activities. These variances

were partially

offset by

a $0.6 million

decrease in

occupancy

and

equipment

expenses,

primarily

reflecting

reductions

rental

expenses

and

energy

costs;

and

$0.4

million increase in net gains on OREO properties, mainly driven by a decrease

in property values write-downs.

Consumer (Retail) Banking

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities

conducted

mainly

through

FirstBank’s

branch

network

and

loan

centers

Puerto

Rico.

Loans

consumers

include

auto

loans

and

finance

leases,

boat

loans,

personal

loans,

credit

card

loans,

and

lines

credit.

Deposit

products

include

interest-bearing

and

non-interest-

bearing checking and savings accounts, individual retirement accounts

(“IRAs”), and retail CDs. Retail deposits gathered through

each

branch of FirstBank’s retail network

serve as one of the funding sources for the lending and investing activities.

Consumer lending

historically has

been mainly

driven by

auto loan

and leases

originations. The

Corporation follows

a strategy

seeking

provide

outstanding

service

selected

auto

dealers that

provide

the

channel for

the

bulk

the Corporation’s

auto

loan

originations.

Personal

loans, credit

cards,

and,

to a

lesser extent,

boat

loans also

contribute

to interest

income

generated

on consumer

lending.

Management

plans

continue

active

the

consumer

loan

market,

applying

the

Corporation’s

strict

underwriting

standards.

Other activities included in this segment are insurance activities in the Puerto

Rico region.

Segment income

before taxes

for the

year ended

December 31,

2023 increased

to $419.6

million, compared

to $301.3

million for

2022. The

highlights of

the Consumer

(Retail) Banking

segment’s

financial results

for the

years ended

December 31,

2023 and

2022

include the following:

●

Net

interest

income

for

the year

ended

December

31,

2023

was $575.4

million,

compared

to $442.6

million

for 2022.

The

increase

was

mainly

due

higher

income

from

funds

loaned

other

business

segments

resulting

from

higher

market interest

rates that

exceeded the

decrease in

interest rate

spreads resulting

from the

increase in

interest rates

paid

on retail deposits to customers.

●

The

provision

for

credit

losses

for

the

year

ended

December

31,

2023

increased

$8.8

million

$65.9

million,

compared

to $57.1

million

for

the

year

ended

December

31,

2022.

The increase

primarily

reflects

the

increases

the

size of the consumer loan portfolios and higher delinquency

and historical charge-off levels in all major

portfolio classes,

partially offset by

improvements in the forecasted

macroeconomic variables such

as the regional unemployment

rate and

retail sales in the case of credit cards.

●

Non-interest income for the

year ended December 31,

2023 was $83.2 million,

compared to $78.5 million

for 2022.

The

increase includes

a $4.5

million increase

in card

and processing

income driven

by higher

transactional volumes,

a $1.4

million

increase

higher

benefit

recognized

relation

purchased

income

tax

credits

realized

and

$0.8

million increase in debit card incentives collected during 2023.

These variances were partially offset by decreases of $0.8

million in insurance commission income and $0.7 million in service charges

and fees on deposit accounts.

●

Direct non-interest expenses for

the year ended December

31, 2023 were $173.2 million,

compared to $162.7 million

for

2022.

The increase

was primarily

related to a

$4.5 million

increase in

employees’ compensation

and benefits

expenses,

mainly

driven

annual

salary

merit

increases

and

minimum

wage

adjustments

and

increases

medical

insurance

premium

costs,

and

stock-based

compensation

expense,

partially

offset

higher

deferral

loan

origination

costs;

$3.1 million increase in

credit and debit card processing

expenses, mainly driven by higher

transactional volumes; a $2.7

million increase in the FDIC deposit insurance expense allocated

to this segment due to the aforementioned FDIC special

assessment expense and

the two basis points

increase on the initial

base deposit insurance

assessment rate that came

into

effect during the first quarter of 2023; and

a $0.5 million increase in business promotion expenses.

These variances were

partially

offset

by a

$0.6 million

decrease

in occupancy

and equipment

expenses

and

a $0.3

million

decrease in

taxes,

other than income taxes.

Mortgage Banking

The Mortgage

Banking segment conducts

its operations

mainly through

FirstBank. The

Mortgage Banking

segment consists of

the

origination, sale, and

servicing of a variety

of residential mortgage loan

products. Originations are

sourced through different

channels,

such

FirstBank

branches

and

purchases

from

mortgage

bankers,

and

association

with

new

project

developers.

The

mortgage

banking segment

focuses on

originating

residential real

estate loans,

some of

which conform

to the

Federal Housing

Administration

(the

“FHA”),

the

Veterans

Administration

(the

“VA”),

and

U.S.

Department

Agriculture

Rural

Development

(“RD”)

standards.

Loans originated that meet

the FHA’s

standards qualify for

the FHA’s

insurance program whereas loans

that meet the standards

of the

or the RD are guaranteed by their respective federal agencies.

Mortgage

loans that

do not

qualify under

the FHA,

VA,

or RD

programs

are referred

to as

conventional

loans. Conventional

real

estate loans

can be

conforming or

non-conforming. Conforming

loans are residential

real estate loans

that meet

the standards

for sale

under

the

U.S.

Federal

National

Mortgage

Association

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”) programs.

Loans that

do not

meet FNMA

or FHLMC

standards are

referred to

as non-conforming

residential real

estate

loans. The Mortgage

Banking segment also acquires

and sells mortgages

in the secondary

markets. Residential real

estate conforming

loans are sold to investors like FNMA and FHLMC.

The Corporation has commitment authority to issue GNMA MBS.

Segment

income

before

taxes

for

the

year

ended

December

31,

2023

decreased

$74.2

million,

compared

$99.5

million

for

2022. The

highlights of

the Mortgage

Banking segment’s

financial results

for the

years ended

December 31,

2023 and

2022 include

the following:

●

Net interest

income for

the year ended

December 31,

2023 was

$78.7 million,

compared to

$98.9 million

for 2022.

The

decrease

net

interest

income

was

primarily

attributable

increase

the

cost

funds

charged

this

segment,

resulting from higher market interest rates, as well as a decrease in average loan balances.

●

The provision

for credit

losses for

2023 was

a net

benefit of

$7.5 million,

compared to

a net

benefit of

$7.6 million

for

2022.

The

net

benefit

recorded

during

2023

was

primarily

updated

macroeconomic

variables,

such

the

Regional Home

Price Index

and the

unemployment rate,

partially offset

by newly

originated loans

which have

a longer

life.

The

net

benefit

recorded

during

2022

reflects

the

effect

decrease

the

size

the

loan

portfolio

well

reductions in qualitative reserves associated with reduced COVID-19 uncertainties.

●

Non-interest income for

the year ended

December 31, 2023

was $11.4

million, compared to

$16.0 million for

2022. The

decrease was

mainly driven

by a

$4.9 million

decrease in

the net

realized gain

on sales

of residential

mortgage loans

the secondary market mainly due to a lower volume of sales and lower margins.

●

Direct non-interest

expenses for

the year

ended December

31, 2023

were $23.5

million, compared

to $23.0

million for

2022.

The increase was mainly related

to a $1.5 million increase in

the FDIC deposit insurance

expense allocated to this

segment due to the aforementioned FDIC

special assessment expense and the

two basis points increase on the initial base

deposit insurance assessment rate

that came into effect

during the first quarter

of 2023. This variance

was partially offset

by a $0.9

million increase in

net gains on

OREO operations mainly

driven by a

$0.4 million decrease

in property values

write-downs and a $0.4 million increase in net realized gains on sales of OREO properties.

Treasury and

Investments

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

treasury

and

investment

management

functions.

The

treasury function, which

includes funding and

liquidity management, lends

funds to the

Commercial and Corporate

Banking segment,

the Mortgage

Banking segment,

the Consumer

(Retail) Banking

segment, and

the United

States Operations

segment to

finance their

respective lending

activities and

borrows from

those segments.

The Treasury

function also

obtains funds

through brokered

deposits,

advances from the FHLB, and repurchase agreements involving investment

securities, among other possible funding sources.

The investment function is intended to implement a leverage strategy for the

purposes of liquidity management, interest rate risk

management and earnings enhancement.

The interest rates charged or credited by Treasury

and Investments are based on market rates.

Segment loss

before taxes

for the

year ended

December 31,

2023 was

$15.7 million,

compared to

segment income

before taxes

$36.3 million

for 2022.

The highlights

of the

Treasury and

Investments segment’s

financial results

for the

years ended December

31,

2023 and 2022 include the following:

●

Net

interest

loss

for

the

year

ended

December

31,

2023

was

$13.9

million,

compared

net

interest

income

$39.6

million for 2022.

The decrease was mainly

related to an increase

in the net

transfer pricing charge

associated to the

cost

funds

borrowed

from

the

Consumer

(Retail)

Banking

segment,

resulting

from

higher

market

interest

rates,

coupled

with a reduced interest rate spread driven by a higher cost of funding.

●

Non-interest

income

for

the

year

ended

December

31,

2023

was

$2.0

million,

compared

non-interest

loss

$0.1

million for

2022.

The variance

primarily

reflects a

$1.6 million

gain recognized

on the

repurchase of

$21.4 million

junior subordinated debentures and a $0.5 million decrease in unrealized

losses on marketable equity securities.

●

Direct non-interest expenses

for 2023 were $3.8

million, compared to $3.7

million for 2022.

The increase was primarily

reflected in employees’ compensation and benefits expenses.

United States Operations

The United

States Operations

segment

consists of

all banking

activities conducted

by FirstBank

on the

U.S. mainland.

FirstBank

provides a

wide range

of banking

services to

individual and

corporate customers

primarily in

southern Florida

through eight

banking

branches.

The United

States Operations

segment

offers

an array

of both

consumer

and commercial

banking

products

and

services.

Consumer banking

products include

checking, savings

and money

market accounts,

retail CDs,

internet banking

services, residential

mortgages, and

home equity

loans and

lines of

credit. Retail

deposits, as

well as

FHLB advances

and brokered

CDs, allocated

to this

operation serve as funding sources for its lending activities.

Commercial

banking

services

include

checking,

savings

and

money

market

accounts,

retail

CDs,

internet

banking

services,

cash

management services, remote data capture,

and automated clearing house (“ACH”)

transactions.

Loan products include the traditional

C&I and commercial real estate products, such as lines of credit, term loans,

and construction loans.

Segment

income

before

taxes

for

the

year

ended

December

31,

2023

decreased

$42.8

million,

compared

$53.1

million

for

2022.

The highlights

of the

United

States operations

’

segment’s

financial

results for

the years

ended

December

31, 2023

and

2022,

include the following:

●

Net interest income

for the year

ended December 31,

2023 was $79.4

million, compared to

$80.5 million for

2022.

The

decrease

was mainly

due

to an

increase

the cost

of funds

charged

to this

segment,

that exceeded

the benefit

from a

slight increase in interest rate spread driven by increases in yields and average

balance of loans.

●

The

Corporation

recognized

provision

for

credit

losses

$8.7

million

for

the

year

ended

December

31,

2023,

compared to a net benefit

of $3.1 million for the

same period in 2022. The

provision for credit losses for

2023 includes a

provision

expense

$7.8

million

for

the

commercial

and

construction

loan

portfolios

mainly

due

$6.0

million

charge associated

with a

nonaccrual C&I

participated loan

in the

power generation

industry.

Meanwhile, the

net benefit

recorded during 2022 mainly

reflects reductions in qualitative reserves

associated with reduced COVID-19

uncertainties,

partially offset by loan growth.

●

Total non

-interest income for the year

ended December 31, 2023

amounted to $6.7 million,

compared to $2.9 million

for

2022.

The increase was primarily

related to a $3.2

million increase in net

gains from sales of

fixed assets, of which

$3.0

million was

related to

the sale

of a

banking premise;

a $0.3

million increase

related to

higher unused

loan commitment

fees; and a $0.2 million increase in income from insurance commissions.

●

Direct non-interest

expenses for

the year

ended December

31, 2023

were $34.7

million, compared

to $33.4

million for

2022.

The increase

was mainly

associated to

a $1.0

million increase

in the

FDIC deposit

insurance expense

allocated to

this segment due

to the aforementioned

FDIC special assessment

expense and the

two basis points increase

on the initial

base deposit

insurance assessment

rate that

came into effect

during the

first quarter

of 2023,

and a $0.8

million increase

in employees’

compensation and

benefits expenses.

These variances

were partially

offset by

a $0.3

million decrease

occupancy and equipment expenses.

Virgin

Islands Operations

The Virgin

Islands Operations

segment consists

of all

banking activities

conducted by

FirstBank in

the USVI

and BVI,

including

consumer

and commercial

banking

services,

with

a total

of eight

banking

branches

currently

serving

the islands

the USVI

St.

Thomas,

St.

Croix,

and

St.

John,

and

the

island

Tortola

the

BVI.

The

Virgin

Islands

Operations

segment

driven

its

consumer, commercial lending, and deposit

-taking activities.

Loans

consumers

include

auto

and

boat

loans,

lines

credit,

and

personal

and

residential

mortgage

loans.

Deposit

products

include

interest-bearing

and

non-interest-bearing

checking

and

savings

accounts,

IRAs,

and

retail

CDs.

Retail

deposits

gathered

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

Segment income

before taxes for

the year ended

December 31,

2023 increased

to $2.9 million,

compared to

$1.7 million

for 2022.

The highlights

of the

Virgin

Islands operations’

segment’s

financial results

for the

years ended

December 31,

2023 and

2022

include

the following:

●

Net interest

income for

the year

ended December

31, 2023

was $22.8

million, compared

to $23.8

million for

the same

period in

2022.

The decrease

was mainly

related to

an increase

in interest

expense, particularly

in time

deposits due

higher rates

paid on

new issuances

and renewals,

partially offset

by an

increase in

interest income

on commercial

loans

driven by

the upward repricing

of commercial

and construction

variable-rate loans

and on new

loan originations

as well

as higher

average loan

balances and

an increase

in interest

income on

consumer loans

mainly related

to higher

average

loan balances and higher yields.

●

The

provision

for

credit

losses

for

the

year

ended

December

31,

2023,

was

$0.1

million

compared

$2.0

million

2022.

The

decrease

was

driven

favorable

economic

outlook

the

projection

certain

macroeconomic

variables,

such

the

unemployment

rate.

Meanwhile,

the

provision

recorded

during

2022

was

primarily

consumer

loans

reflecting

the

effects

loan

growth,

higher

delinquency

and

charge-off

levels,

and

less

favorable

outlook of certain macroeconomic variables.

●

Non-interest

income for

the year

ended December

31, 2023

was $8.0

million, compared

to $7.7

million for

2022.

The

increase

was

primarily

$0.4

million

increase

card

and

processing

income

and

$0.2

million

increase

higher

unused

loan

commitment

fees,

partially

offset

$0.3

million

decrease

income

from

insurance

commissions.

●

Direct non-interest expenses

for the year

ended December 31,

2023 remained flat

at $27.9 million compared

to the same

period in 2022. Non-interest

expenses include a $0.6

million increase in the FDIC

deposit insurance expense

allocated to

this segment due

to the aforementioned

FDIC special assessment

expense and the

two basis points increase

on the initial

base deposit insurance assessment rate that came into effect

during the first quarter of 2023 and a $0.2 million increase in

credit

and

debit

card

processing

expenses,

partially

offset

$0.9

million

decrease

occupancy

and

equipment

expenses.

FINANCIAL CONDITION AND OPERATING

DATA

ANALYSIS

Financial Condition

The following table presents an average balance sheet of the Corporation for the following

years:

December 31,

2023

2022

2021

(In thousands)

ASSETS

Interest-earning assets:

Money market and other short-term investments

584,083

1,156,127

2,012,617

U.S. and Puerto Rico government obligations

2,843,284

2,870,889

2,065,522

MBS

3,702,908

4,052,660

4,064,343

FHLB stock

36,606

20,419

28,208

Other investments

14,167

12,747

10,254

Total investments

7,181,048

8,112,842

8,180,944

Residential mortgage loans

2,814,102

2,886,594

3,277,087

Construction loans

172,952

121,642

181,470

Commercial loans

5,244,503

5,092,638

5,228,150

Finance leases

789,870

636,507

518,757

Consumer loans

2,704,877

2,461,632

2,207,685

Total loans

11,726,304

11,199,013

11,413,149

Total interest-earning

assets, excluding valuation

allowances and ACL

18,907,352

19,311,855

19,594,093

Total non-interest-earning

assets

573,010

603,728

720,240

Valuation

allowances and ACL

(1)

(773,939)

(536,934)

(11,300)

Total assets

18,706,423

19,378,649

20,303,033

LIABILITIES

Interest-bearing liabilities:

Time deposits

2,590,313

2,213,145

2,636,303

Brokered CDs

348,829

69,694

141,959

Other interest-bearing deposits

7,664,793

8,279,320

8,162,280

Interest-bearing deposits

10,603,935

10,562,159

10,940,542

Securities sold under agreements to repurchase

54,570

194,948

300,482

Advances from the FHLB

541,000

179,452

354,055

Other long-term borrowings

171,184

184,173

183,762

Total interest-bearing

liabilities

11,370,689

11,120,732

11,778,841

Total non-interest-bearing

liabilities

(2)

5,950,495

6,622,638

6,285,942

Total liabilities

17,321,184

17,743,370

18,064,783

STOCKHOLDERS' EQUITY

Stockholders' equity:

Preferred stock

32,938

Common stockholders' equity

1,385,239

1,635,279

2,205,312

Stockholders' equity

1,385,239

1,635,279

2,238,250

Total liabilities and stockholders'

equity

18,706,423

19,378,649

20,303,033

(1) Includes, among other things, the ACL on loans and finance

leases and debt securities, as well as unrealized gains and losses

on available-for-sale debt securities.

(2) Includes, among other things, non-interest-bearing deposits.

The Corporation’s

total average assets

were $18.7

billion for the

year ended December

31, 2023, compared

to $19.4 billion

for the

year

ended

December

31,

2022,

net

decrease

$672.2

million.

The

variance

primarily

reflects

the

following:

(i)

decrease

$572.0

million

the

average

balance

interest-bearing

cash,

which

consisted

primarily

deposits

maintained

the

Federal

Reserve Bank; (ii)

a decrease of $377.4

million in debt

securities, mainly due

to principal repayments

of U.S. agencies MBS;

and (iii)

increase

$239.0

million

unrealized

losses

available-for-sale

debt

securities.

These

variances

were

partially

offset

$527.3 million

increase in the

average balance

of total loans,

consisting of

an increase of

$396.6 million

in consumer loans

mainly in

the auto loan and finance

lease portfolios, a $203.2

million increase in the

commercial and construction

loans, and a decrease of

$72.5

million in residential mortgage loans.

The

Corporation’s

total

average

liabilities

were

$17.3

billion

for

the

year

ended

December

31,

2023,

net

decrease

$422.2

million compared

to December

31, 2022.

The net

decrease was

mainly related

to a

combined decrease

of $1.3

billion in

the average

balance

non-interest

and

interest-bearing

demand

deposits,

checking,

and

savings

accounts,

primarily

reflecting

the

effect

customers allocating

more cash

into higher

yielding alternatives.

This variance

was partially

offset by

increases of

$377.2 million

the average

balance of non-brokered

time deposits, $279.1

million in the

average balance

of brokered

CDs, and $208.2

million in the

average balance of total borrowings, mainly associated with long-term FHLB advances.

Assets

The Corporation’s

total assets were $18.9

billion as of December

31, 2023, an increase

of $275.1 million from

December 31, 2022,

primarily

$627.7

million

increase

the

total

loan

portfolio

before

the

ACL,

mainly

consumer

and

commercial

and

construction

loans, and

a $182.7

million

increase in

cash and

cash equivalents

mainly

driven by

the net

effect

of the

end

of period

overall

increase

deposits,

net

the

decrease

borrowings,

partially

offset

$452.4

million

decrease

total

investment

securities net of a $165.4 million increase in the fair value of available-for

-sale debt securities.

Loans Receivable, including Loans Held for Sale

As of

December 31,

2023, the

Corporation’s

total loan

portfolio before

the ACL

amounted to

$12.2 billion,

an increase

of $627.7

million compared to December 31, 2022. In

terms of geography,

the growth consisted of increases of $648.9 million

and $44.9 million

the

Puerto

Rico

and

Virgin

Islands

regions,

respectively,

partially

offset

$66.1

million

decrease

the

Florida

region.

On a

portfolio

basis,

the

growth

consisted

increases

$330.2

million

consumer

loans,

including

$276.8

million

increase

auto

loans

and

finance

leases,

and

$328.0

million

commercial

and

construction

loans,

partially

offset

$30.5

million

decrease

residential mortgage loans.

December

31,

2023,

the Corporation’s

loans

held-for-investment

portfolio

was

comprised

commercial

and

construction

loans

(47%),

residential

real

estate

loans

(23%),

and

consumer

and

finance

leases

(30%).

the

total

gross

loan

portfolio

held

for

investment

$12.2

billion

December

31,

2023,

the

Corporation

had

credit

risk

concentration

approximately

80%

the

Puerto Rico region,

17% in the

United States region

(mainly in the

state of Florida),

and 3% in

the Virgin

Islands region, as

shown in

the following table:

As of December 31, 2023

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,187,875

168,131

465,720

2,821,726

Construction loans

111,664

3,737

99,376

214,777

Commercial mortgage loans

1,725,325

65,312

526,446

2,317,083

C&I loans

2,130,368

119,040

924,824

3,174,232

Total commercial loans

3,967,357

188,089

1,550,646

5,706,092

Consumer loans and finance leases

3,583,272

68,498

5,895

3,657,665

Total loans held for investment,

gross

9,738,504

424,718

2,022,261

12,185,483

Loans held for sale

7,368

Total loans, gross

9,745,872

424,718

2,022,261

12,192,851

As of December 31, 2022

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,237,983

179,917

429,390

2,847,290

Construction loans

30,529

4,243

98,181

132,953

Commercial mortgage loans

1,768,890

65,314

524,647

2,358,851

C&I loans

1,791,235

68,874

1,026,154

2,886,263

Total commercial loans

3,590,654

138,431

1,648,982

5,378,067

Consumer loans and finance leases

3,256,070

61,419

9,979

3,327,468

Total loans held for investment,

gross

9,084,707

379,767

2,088,351

11,552,825

Loans held for sale

12,306

Total loans, gross

9,097,013

379,767

2,088,351

11,565,131

First

BanCorp.

relies

primarily

its

retail

network

branches

originate

residential

and

consumer

personal

loans.

The

Corporation

manages

its construction

and

commercial

loan originations

through

centralized

units

and

most

its originations

come

from existing customers,

as well as through

referrals and direct

solicitations. Auto loans

and finance

leases originations rely

primarily

on relationships with auto dealers and dedicated sales professionals who serve

selected locations in order facilitate originations.

The following table sets forth certain additional data (including loan production)

related to the Corporation's loan portfolio net of the

ACL on loans and finance leases as of and for the indicated dates:

For the Year

Ended December 31,

2023

2022

2021

(Dollars in thousands)

Beginning balance as of January 1

11,304,667

10,826,783

11,441,691

Residential real estate loans originated and purchased

424,641

468,599

623,290

Construction loans originated

154,720

112,640

102,538

C&I and commercial mortgage loans originated and purchased

2,750,817

2,950,904

2,994,893

Finance leases originated

327,528

308,811

240,419

Consumer loans originated

1,468,794

1,516,316

1,287,487

Total loans originated

and purchased

5,126,500

5,357,270

5,248,627

Sales of loans

(155,733)

(293,213)

(620,227)

Repayments and other decreases

(1)

(4,344,426)

(4,586,173)

(5,243,308)

Net increase (decrease)

626,341

477,884

(614,908)

Ending balance as of December 31

11,931,008

11,304,667

10,826,783

Percentage increase (decrease)

5.54%

4.41%

-5.37%

_____________

(1)

Includes, among other things, the change in the ACL on loans

and finance leases and cancellation of loans due to the repossession

of the collateral and loans repurchased.

Residential Real Estate Loans

As of

December 31,

2023, the

Corporation’s

total residential

mortgage

loan portfolio,

including

loans held

for sale,

decreased by

$30.5

million,

as compared

to the

balance

as of

December 31,

2022.

The

decline

the residential

mortgage

loan

portfolio

reflects

decreases

of $55.0

million in

the Puerto

Rico region

and $11.8

million in

the Virgin

Islands region,

partially offset

by an

increase of

$36.3 million

in the

Florida region.

The decline

was driven

by repayments,

foreclosures, and

charge-offs,

which more

than offset

the

volume of new loan originations kept on the balance sheet.

As of

December 31,

2023, the

majority of

the Corporation’s

outstanding balance

of residential

mortgage loans

in the

Puerto Rico

and the Virgin

Islands regions consisted

of fixed-rate loans

that traditionally carry

higher yields than

residential mortgage loans

in the

Florida region. In

the Florida region,

approximately 38% of

the residential mortgage

loan portfolio consisted

of hybrid adjustable-rate

mortgages. In

accordance with

the Corporation’s

underwriting guidelines,

residential mortgage

loans are

primarily fully

documented

loans, and the Corporation does not originate negative amortization loans.

Residential

mortgage

loan

originations

for

the

year

ended

December

31,

2023

amounted

$424.6

million,

compared

$468.6

million for 2022.

The decrease in

residential mortgage

loan originations of

$44.0 million consisted

of declines

of $38.6 million

in the

Puerto

Rico

region

and

$9.2

million

the

Virgin

Islands

region,

partially

offset

$3.8

million

increase

the

Florida

region.

Approximately

46% of

the $324.3

million residential

mortgage loan

originations in

the Puerto

Rico region

during 2023

consisted of

conforming loans, compared to 54% of $363.0 million for 2022.

Commercial and Construction Loans

As of December 31,

2023, the Corporation’s

commercial and construction

loan portfolio increased by

$328.0 million, as compared

to the balance as of December 31, 2022.

the

Puerto

Rico

region,

commercial

and

construction

loans

increased

$376.7

million,

compared

the

balance

December 31,

2022. This

increase was

driven by

the origination

of several

term loans,

including nine

commercial relationships,

each

excess

$10

million,

which

increased

the

portfolio

$256.6

million,

including

$150.0

million

participation

C&I

loan

funded

in connection

with the

financial closing

of a

public-private

partnership (P3)

for improvement

of infrastructure

for

toll roads.

The increase

also reflects the

effect of

higher utilization

of lines of

credit including an

increase of $61.1

million associated

with three

lines

credit;

and

$73.3

million

increase

the

outstanding

balance

floor

plan

lines

credit.

The

variance

also

reflects

the

aforementioned refinancing of

a $46.5 million

municipal loan into

a shorter commercial

loan structure. These variances

were partially

offset by multiple payoffs and paydowns, including

four C&I relationships,

each in excess of $10 million, totaling $89.3 million.

the

Virgin

Islands

region,

commercial

and

construction

loans

increased

$49.6

million,

compared

the

balance

December 31,

2022. The

increase was

driven by

the utilization

of $57.2

million of

a new

$100.0 million

collateralized line

of credit

facility extended to a government public corporation.

In the

Florida region,

commercial and

construction loans

decreased by

$98.3 million,

as compared

to the

balance as

of December

31, 2022. This decrease

reflects, among other

things, the effect of

$138.1 million in payoffs

and paydowns of

eight C&I relationships,

each

excess

$10

million,

including

the

aforementioned

payoff

$24.3

million

adversely

classified

C&I

participated

loan,

partially

offset

the

originations

five

C&I

term

loans,

each

excess

$10

million,

which

increased

the

portfolio

amount

$71.0 million.

As of

December 31,

2023,

the Corporation

had $187.7

million outstanding

in loans

extended

to the

Puerto Rico

government,

its

municipalities,

and

public

corporations,

compared

$169.8

million

December

31,

2022.

See

“Exposure

Puerto

Rico

Government” below for additional information.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

December

31,

2023,

the

Corporation

had

$90.5

million in

loans to

USVI government

public corporations,

compared to

$38.0 million

as of

December 31,

2022.The increase

in loans

to USVI

government public

corporations was

driven by

the aforementioned

$57.2 million

line of

credit utilization.

See “Exposure

USVI Government” below for additional information.

As of

December

31,

2023,

the Corporation’s

total

commercial

mortgage

loan

exposure

amounted

$2.3

billion,

or 19%

the

total loan

portfolio.

Relationships that

have an

exposure of

at least

$5 million

amounted to

$1.9 billion,

or 84%

of the

total of

such

portfolio, as of December

31, 2023. The $1.9

billion exposure consisted of

$1.5

billion and $0.4 billion

in the Puerto Rico

and Florida

regions, respectively.

The $1.5 billion

exposure in the

Puerto Rico region

was comprised mainly

of 44% in the

retail industry,

24% in

office real

estate, and 20%

in the hotel

industry.

The $0.4 billion

exposure in

the Florida

region was

comprised mainly

of 41%

in the

hotel industry,

20% in the retail industry,

and 8% in office real estate.

December

31,

2023,

the

Corporation’s

total

exposure

shared

national

credit

(“SNC”)

loans

(including

unused

commitments) amounted to $1.2 billion as of December

31, 2023 compared to $1.1 billion as of December

31, 2022. The increase was

primarily

the

aforementioned

$150.0

million

participation

C&I

loan

origination.

December

31,

2023,

approximately $389.8 million of

the SNC exposure is related

to the portfolio in the

Puerto Rico region and $828.6

million is related to

the portfolio in the Florida region.

Commercial and

construction loan

originations (excluding

government loans)

for the

year ended

December 31,

2023 amounted

$2.7 billion, compared to $3.0 billion for 2022.

The decrease of $287.5 million consisted of a decrease

of $305.1 million in the Florida

region,

partially offset by increases of $17.3 million in the Puerto Rico region

and $0.3 million in the Virgin

Islands region.

Government

loan originations

for the

year ended

December 31,

2023 amounted

to $180.7

million, compared

to $51.1

million

for

2022. Government loan originations

for 2023 were mainly related to

the aforementioned refinancing of a

$46.5 million municipal loan

into a

shorter commercial

loan structure

the aforementioned

$57.2 million

cash collateralized

line of

credit utilization

in the

Virgin

Islands region,

and a

$12.8 million

loan to

an agency

of the Puerto

Rico government

for a

low-income housing

project. On

the other

hand,

government

loan

originations

for 2022 were

mainly

the

renewal

public

corporation

line

credit in

the

Virgin

Islands region, the renewal of a municipal loan

in the Puerto Rico region, and the utilization of an

arranged overdraft line of credit of a

government entity in the Virgin

Islands region.

Consumer Loans and Finance Leases

As of December

31, 2023, the

Corporation’s

consumer loan and

finance lease portfolio

increased by $330.2

million to $3.7

billion,

as compared to

the portfolio balance

of $3.3 billion

as of December

31, 2022. This increase

was mainly related

to increases of $138.6

million

and

$138.2

million

the

finance

leases

and

auto

loans

portfolios,

respectively.

The

growth

consumer

loans

was

mainly

reflected in the Puerto Rico region across all portfolio classes.

Originations

auto

loans

(including

finance

leases)

for

the

year

ended

December

31,

2023

decreased

$31.3

million

$1.0

billion, as compared to the same period in 2022. The decrease consisted of a $34.3

million decrease in the Puerto Rico region, partially

offset

by a

$3.0 million

increase in

the Virgin

Islands region.

Other consumer

loan originations,

other than

credit cards,

for the

year

ended

December

31,

2023

amounted

$302.6

million,

compared

$304.5

million

for

2022.

The

utilization

activity

the

outstanding credit

card portfolio

for the

year ended

December 31,

2023 amounted

to $492.6

million, compared

to $488.3

million for

2022.

Maturities of Loans Receivable

The following tables

present the loans

held for investment

portfolio as of

December 31, 2023

by remaining contractual

maturities and

interest rate type:

After One Year

After Five Years

Total Portfolio

One Year or Less

Through Five Years

Through 15 Years

After 15 Years

(In thousands)

Residential mortgage

68,105

433,368

1,212,861

1,107,392

2,821,726

Construction loans

173,170

40,035

1,121

451

214,777

Commercial mortgage loans

1,007,107

1,137,810

168,208

3,958

2,317,083

C&I loans

1,274,423

1,535,068

362,088

2,653

3,174,232

Consumer loans

1,121,631

2,269,326

265,700

1,008

3,657,665

Total loans

(1)

3,644,436

5,415,607

2,009,978

1,115,462

12,185,483

Amount due in one year or less at:

Amount due after one year:

Total Portfolio

Fixed Interest Rates

Variable Interest

Rates

Fixed Interest Rates

Variable Interest

Rates

Residential mortgage

64,349

3,756

2,568,850

184,771

2,821,726

Construction loans

40,611

132,559

26,239

15,368

214,777

Commercial mortgage loans

798,063

209,044

887,301

422,675

2,317,083

C&I loans

290,933

983,490

524,848

1,374,961

3,174,232

Consumer loans

866,565

255,066

2,530,169

5,865

3,657,665

Total loans

(1)

2,060,521

1,583,915

6,537,407

2,003,640

12,185,483

(1)

Scheduled repayments are included in the maturity category in which the payment is due.

The amounts provided do not reflect prepayment assumptions related to the loan portfolio.

Investment Activities

part

its

liquidity,

revenue

diversification,

and

interest

rate

risk

management

strategies,

First

BanCorp.

maintains

debt

securities portfolio classified as available for sale or held to maturity.

The

Corporation’s

total

available-for-sale

debt

securities

portfolio

December

31,

2023

amounted

$5.2

billion,

$369.5

million decrease

from December

31, 2022.

The decrease

was mainly

driven by

repayments of

approximately $396.4

million of

U.S.

agencies MBS

and debentures;

and repayments

of $137.0

million associated

to matured

securities, of

which $129.0

million were

U.S

agencies callable

debentures;

partially offset

by a $165.4

million increase in

fair value attributable

to changes in

market interest rates.

As of

December 31,

2023, the

Corporation had

a net

unrealized loss

on available-for-sale

debt securities

of $632.8

million. This

net

unrealized

loss is

attributable

to instruments

on books

carrying a

lower interest

rate than

market rates.

The Corporation

expects that

this

unrealized

loss

will

reverse

over

time

and

likely

that

will

not

required

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.

December

31,

2023,

substantially

all

the

Corporation’s

available-for-sale

debt

securities

portfolio

was

invested

U.S.

government and

agencies debentures

and fixed-rate

GSEs’ MBS.

In addition,

as of

December 31,

2023, the

Corporation held

a bond

issued

the

PRHFA,

classified

as available

for

sale,

specifically

residential

pass-through

MBS in

the

aggregate

amount

of $3.2

million

(fair

value

$1.4

million).

This

residential

pass-through

MBS

issued

the

PRHFA

collateralized

certain

second

mortgages originated

under a program

launched by the

Puerto Rico government

in 2010 and

had an unrealized

loss of $1.7

million as

December

31,

2023,

of which

$0.4

million

is due

to credit

deterioration.

During 2021,

the

Corporation

placed

this instrument

nonaccrual status based on the delinquency status of the underlying

second mortgage loans collateral.

December

31,

2023,

the

Corporation’s

held-to-maturity

debt

securities

portfolio,

before

the

ACL,

decreased

$354.2

million, compared to

$437.5 million as

of December 31,

2022, mainly due

to the refinancing

of a $46.5 million

municipal bond into

shorter-term

commercial

loan

structure

and

$38.9

million

repayments.

Held-to-maturity

debt

securities

include

fixed-rate

GSEs’

MBS with

a carrying

value of

$247.1 million

(fair value

of $235.2

million) as

of December

31, 2023,

compared to

$271.8 million

of December 31,

2022. Held-to-maturity debt

securities also include financing

arrangements with Puerto

Rico municipalities issued

bond

form,

which

the

Corporation

accounts

for

securities,

but

which

were

underwritten

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

external

credit

agencies.

These

bonds

have

seniority

the

payment

operating

costs

and

expenses

the

municipality

and, in

most cases,

are supported

by assigned

property tax

revenues. As

of December

31, 2023,

approximately 54%

the

Corporation’s

municipal

bonds

consisted

obligations

issued

three

the

largest

municipalities

Puerto

Rico.

The

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required

for

the

payment

all

their

respective

general

obligation

bonds

and

loans.

Given

the

uncertainties

the

effects

that

the

fiscal

position

the

Puerto

Rico

central government,

and the measures

taken, or

to be

taken, by

other government

entities may

have on

municipalities, and

the higher

interest rate environment, the Corporation

cannot be certain whether future

charges to the ACL on these

securities will be required. As

of December

31, 2023,

the ACL

for held-to-maturity

debt securities

was $2.2

million, compared

to $8.3

million as

of December

31,

2022.

The decrease

in the

ACL of

held-to-maturity

debt

securities was

mostly driven

by the

aforementioned

refinancing of

a $46.5

million municipal bond

into a shorter-term

commercial loan structure

and, to a

lesser extent, a

reduction in qualitative

reserves driven

by updated financial information of certain bond issuers received during 2023.

See

“Risk Management

–

Exposure

to Puerto

Rico

Government”

below

for

information

and

details

about

the Corporation’s

total

direct

exposure

to the

Puerto Rico

government,

including municipalities

and

“Credit

Risk Management”

below

for the

ACL of

the

exposure to Puerto Rico municipal bonds.

The following table presents the carrying values of investments as of the indicated dates:

December 31,

2023

December 31, 2022

(In thousands)

Money market investments

1,239

2,025

Available-for-sale

debt securities, at fair value:

U.S. government and agencies obligations

2,443,790

2,492,228

Puerto Rico government obligations

1,415

2,201

MBS:

Residential

2,633,161

2,941,458

Commercial

151,618

163,133

Other

500

Total available-for-sale

debt securities, at fair value

5,229,984

5,599,520

Held-to-maturity debt securities, at amortized cost:

MBS:

Residential

146,468

166,739

Commercial

100,670

105,088

Puerto Rico municipal bonds

107,040

165,710

ACL for held-to-maturity Puerto Rico municipal bonds

(2,197)

(8,286)

Total held-to-maturity

debt securities

351,981

429,251

Equity securities, including $34.6 million and $42.9 million of FHLB stock

as of December 31, 2023 and 2022, respectively

49,675

55,289

Total money market

investments and investment securities

5,632,879

6,086,085

The carrying values of debt securities as of December 31, 2023 by contractual maturity

(excluding MBS), are shown below:

Carrying Amount

Weighted-Average

Yield %

(Dollars in thousands)

U.S. government and agencies obligations:

Due within one year

605,185

0.75

Due after one year through five years

1,821,545

0.86

Due after five years through ten years

8,163

2.64

Due after ten years

8,897

5.49

2,443,790

0.85

Puerto Rico government and municipalities obligations:

Due within one year

3,165

9.30

Due after one year through five years

51,230

7.78

Due after five years through ten years

36,050

7.13

Due after ten years

18,010

7.46

108,455

7.55

MBS

3,031,917

1.69

ACL on held-to-maturity debt securities

(2,197)

Total debt securities

5,581,965

1.45

Net

interest

income

future

periods

could

affected

prepayments

MBS.

Any

acceleration

the

prepayments

MBS

purchased

premium

would

lower

yields

these

securities,

since

the

amortization

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

the

discount

would

accelerate.

These

risks

are

directly

linked

future

period

market

interest

rate

fluctuations.

Net

interest

income

in future

periods

might

also

be affected

by the

Corporation’s

investment

callable

securities. As

of December

31,

2023, the

Corporation had

approximately $1.9

billion in

callable debt

securities (U.S.

agencies debt

securities) with

an average

yield

of 0.79%

of which approximately

62% were purchased at

a discount and 3%

at a premium. See

“Risk Management” below for

further

analysis

the

effects

changing

interest

rates

the

Corporation’s

net

interest

income

and

the

Corporation’s

interest

rate

risk

management strategies.

Also, refer

to Note

3 –

“Debt Securities”

to the

audited consolidated

financial statements

included in

Part II,

Item 8 of this Form 10-K, for additional information regarding the Corporation’s

debt securities portfolio.

RISK MANAGEMENT

General

Risks

are

inherent

virtually

all

aspects

the

Corporation’s

business

activities

and

operations.

Consequently,

effective

risk

management

fundamental

the

success

the

Corporation.

The

primary

goals

risk

management

are

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

place

risk

management

framework

monitor,

evaluate

and

manage

the

principal

risks

assumed

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.

Risk Definition

Liquidity Risk

Liquidity risk is

the risk to earnings

or capital arising

from the possibility

that the Corporation

will not have

sufficient cash to

meet

its short-term liquidity

demands, such as

from deposit redemptions

or loan commitments.

See “Liquidity Risk

and Capital Adequacy”

below for further details.

Interest Rate Risk

Interest

rate

risk

the

risk

arising

from

adverse

movements

interest

rates.

See

“Interest

Rate

Risk

Management”

below

for

further details.

Market Risk

Market

risk

the

risk

loss

the

value

assets

liabilities

due

changes

market

conditions,

including

movements

market

rates or

prices, such

as interest

rates

or equity

prices. The

Corporation

evaluates market

risk together

with interest

rate risk.

Both changes in market values

and changes in interest rates

are evaluated and forecasted. See

“Interest Rate Risk Management”

below

for the effects of changes in interest rates on net interest income.

Credit Risk

Credit risk

is the

risk arising

from a

borrower’s or

a counterparty’s

failure to

meet the

terms of

a contract

with the

Corporation or

otherwise to perform as agreed. See “Credit Risk Management”

below for further details.

Operational Risk

Operational

risk

the

risk

arising

from

problems

with

the

delivery

services

products.

This

risk

function

internal

controls,

information

systems,

employees

and

operating

processes.

also

includes

risks

associated

with

the

Corporation’s

preparedness

for

the

occurrence

unforeseen

event.

This

risk

inherent

across

all

functions,

products,

and

services

the

Corporation. See “Operational Risk” below for further details.

Legal,

Regulatory and Compliance Risk

Legal and

regulatory

risk is

the risk

arising

from

the Corporation’s

failure

to comply

with laws

or regulations

that can

adversely

affect the Corporation’s

reputation and/or increase its exposure to litigation or penalties.

Reputational Risk

Reputational

risk

the

risk

arising

from

any

adverse

effect

the

Corporation’s

market

value,

capital,

earnings

arising

from

negative public opinion,

whether true or not.

This risk affects the

Corporation’s

ability to establish new

relationships or services,

or to

continue servicing existing relationships.

Model Risk

Model risk

is the potential

for adverse

consequences from

decisions based

upon incorrect

or misused

model outputs

and reports

based upon

an incomplete or

inaccurate model. The

use of models

exposes the Corporation

to some level

of model risk.

Model errors

can

contribute

incorrect

valuations

and

lead

operational

errors,

inappropriate

business

decisions,

incorrect

financial

entries.

The Corporation seeks to reduce model risk through rigorous model identification

and validation.

Capital Risk

Capital risk

is the

risk that

the Corporation

may lose

value on

its capital

or have

an inadequate

capital plan,

which would

result in

insufficient capital

resources to meet

minimum regulatory requirements

(the Corporation’s

authority to operate

as a bank is dependent

upon the maintenance of adequate capital resources), support its credit rating,

or support its growth and strategic options.

Strategic Risk

Strategic

risk

the

risk

arising

from

adverse

business

decisions,

poor

implementation

business

decisions,

lack

responsiveness

changes

the

banking

industry,

and

operating

environment.

This

risk

function

the

compatibility

the

Corporation’s strategic

goals, the business strategies

developed to achieve

those goals, the resources deployed

against these goals, and

the quality of implementation.

Information Technology

and Cybersecurity Risk

Information technology

risk is

the risk

arising from

the loss of

confidentiality,

integrity,

or availability

of information

systems and

risk

cyber

incidents

data

breaches.

includes

business

risks

associated

with

the

use,

ownership,

operation,

involvement,

influence, and adoption of information technology within the Corporation.

Risk Governance

The

following

discussion

highlights

the

roles

and

responsibilities

the

key

participants

the

Corporation’s

risk

management

framework:

Board of Directors

The Board

of Directors

oversees the

Corporation’s

overall

risk governance

program

with the

assistance

of the

Board

committees

discussed below.

Risk Committee

The

Board

Directors

has

appointed

the

Risk

Committee

assist

the

Board

fulfilling

its

responsibility

oversee

the

Corporation’s

management of

its company-wide

risk management

framework. The

committee’s

role is

one of

oversight, recognizing

that

management

responsible

for

designing,

implementing,

and

maintaining

effective

risk

management

framework.

The

committee’s primary responsibilities are

to:

●

Review and discuss management’s

assessment of the Corporation’s

aggregate enterprise-wide profile

and the alignment of the

Corporation’s risk profile with the

Corporation’s strategic plan, goals

and objectives;

●

Review and recommend to the Board the parameters and establishment of the Corporation’s

risk tolerance and risk appetite;

●

Receive

reports

from

management

and,

appropriate,

other

Board

committees,

regarding

the

Corporation’s

policies

and

procedures

the

Corporation’s

adherence

risk

limits

and

its

established

risk

tolerance

and

risk

appetite

selected risk topics;

●

Oversee the strategies,

policies, procedures, and

systems established by

management to identify,

assess, measure, and

manage

the

major

risks

facing

the

Corporation,

which

may

include

overview

the

Corporation’s

credit

risk,

operational

risk,

information

technology

risk,

compliance

risk,

interest

rate

risk,

liquidity

risk,

market

risk,

and

reputational

risk,

well

management’s capital management,

planning,

and process;

●

Oversee the Corporation’s Loan

Review program;

●

Oversee

management’s

activities

with

respect

capital

stress testing,

model

risk

management,

information

technology

risk

and operational risk;

●

Review and discuss with management risk assessments for new products

and services;

●

Review periodically the scope and effectiveness of the

Corporation’s regulatory compliance policies

and programs; and

●

Annually assess the Corporation’s

institutional insurance programs.

The

Risk

Committee

also

receives

regular

reports

and

engages

discussions

throughout

the

year

the

effectiveness

the

Corporate Information Security Program (“CISP”),

including its inherent risk, the roadmap for addressing those

risks, and the progress

doing

so.

The

Risk

Committee

annually

reviews

and

approves

the

CISP

and

annually

receives

report

security

safeguards in accordance with the Gramm-Leach-Bliley Act.

Asset and Liability Committee

The Board

of Directors

has appoint

ed the

Asset and

Liability Committee

to assist

the Board

in its

oversight

of the

Corporation’s

asset

and

liability

management

policies

the

management

the

Corporation’s

funds,

investments,

liquidity,

market

and

interest rate risk, and the use of derivatives. In doing so, the committee’s

primary functions involve:

●

The

establishment

process

enable

the

identification,

assessment,

and

management

risks

that

could

affect

the

Corporation’s assets and liabilities management;

●

The

identification

the

Corporation’s

risk

tolerance

levels

for

yield

maximization

relating

its

assets

and

liabilities

management;

●

The evaluation

of the

adequacy,

effectiveness,

and

compliance

with the

Corporation’s

risk management

process relating

the Corporation’s assets and liabilities management,

including management’s role in

that process;

and

●

Oversight of the Corporation’s liquidity

position and liquidity stress testing.

Credit Committee

The Board of

Directors has appointed

the Credit Committee to

assist the Board in

its oversight of the

Corporation’s policies

to the Corporation’s lending

function, or credit management. The committee’s

primary responsibilities are to:

●

Monitor the

performance and

quality of

the Corporation’s

credit portfolio

through the

review of

selected measures

of credit

quality and trends and such other information as it deems appropriate;

●

Oversee the effectiveness and administration

of credit-related policies through the review of

such processes, reports and other

information as

it deems appropriate,

including the

loan-quality grading

and examination

process, internal and

external audits

and examinations

of the

Corporation’s

credit processes,

the incidence

of new

problem assets,

the frequency

and reasons

for

credit policy exceptions, the loan review functions and the asset classification

process;

●

Review on an annual basis and recommend to the Board the lending authorities;

●

Approve loans as required by the lending authorities approved by

the Board; and

●

Report to the Board regarding credit management.

Audit Committee

The Board of Directors has appointed

the Audit Committee to assist the

Board in fulfilling its responsibility to oversee

management

regarding:

●

Oversight

the

charter,

strategic

plan

execution,

annual

internal

audit

plan

execution,

staffing,

budget

and

organizational

structure of the internal audit function;

●

The

conduct

and

integrity

the

Corporation’s

financial

reporting

any

governmental

regulatory

body,

stockholders,

other users of the Corporation’s financial

reports and the public;

●

The Corporation’s internal

control over financial reporting and disclosure controls and procedures;

●

The

qualifications,

engagement,

compensation,

independence,

and

performance

the

Corporation’s

independent

auditors,

their

conduct

the

annual

audit

the

Corporation’s

financial

statements,

and

their

engagement

provide

any

other

services;

●

The application of the Corporation’s

related parties transaction policy as established by the Board;

●

The application of the Corporation’s

code of business conduct and ethics as established by management and

the Board;

●

The preparation

of the

Audit Committee

report required

to be

included

in the

proxy statement

for the

Corporation’s

annual

stockholders’ meeting by the rules of the SEC; and

●

The Corporation’s legal and

ethical compliance.

Corporate Governance and Nominating Committee

The

Board

Directors

has

appointed

the

Corporate

Governance

and

Nominating

Committee

develop,

review,

and

assess

corporate

governance

principles.

The

Corporate

Governance

and

Nominating

Committee

responsible

for

director

succession,

orientation

and

compensation,

identifying

and

recommending

new

director

candidates,

overseeing

the

evaluation

the

Board

and

management, annually

recommending to

the Board

the designation

of a

candidate to

hold the

position of

the Chairman

of the

Board,

and

directing

and

overseeing

the

Corporation’s

executive

succession

plan.

addition,

the

Corporate

Governance

and

Nominating

Committee is responsible for overseeing the Corporation’s

sustainability and environmental, social, and governance (“ESG”) policies.

Compensation and Benefits Committee

The Board

of Directors

has appoint

ed the

Compensation

and Benefits

Committee

to oversee

compensation

policies and

practices

including

the

evaluation

and

recommendation

the

Board

the

proper

and

competitive

salaries

and

incentive

compensation

programs of the executive officers and key employees of

the Corporation.

Trust Committee

The Board

of Directors

of the

Bank has

appointed the

Trust Committee

to assist

such Board

of Directors

in fulfilling

its oversight

responsibilities with respect to the Trust

Department and its fiduciary responsibilities. The

Trust Committee’s

main responsibilities are

ensure

proper

exercise

the

fiduciary

powers

the

Bank

and

review

the

activities

the

Trust

Department.

The

Trust

Committee has jurisdiction over all aspects of the Trust

Department and may act on behalf of the Board of Directors of the Bank.

Management Roles and Responsibilities

While

the

Board

Directors

has

the

responsibility

oversee

the

risk

governance

program,

management

responsible

for

implementing

the necessary

policies and

procedures,

and internal

controls. To

carry out

these responsibilities,

the Corporation

has a

clearly

defined

risk governance

culture. To

ensure that

risk management

is communicated

at all

levels of

the Corporation,

and each

area understands

its specific

role, the

Corporation has

established several

management level

committees to

support risk

oversight,

follows:

Executive Risk Management Committee

The

Executive

Risk

Management

Committee

responsible

for

exercising

oversight

information

regarding

the

Corporation’s

enterprise

risk

management

framework,

including

the

significant

policies,

procedures,

and

practices

employed

manage

the

identified

risk

categories

(credit

risk,

operational

risk,

legal

and

regulatory

risk,

reputational

risk,

model

risk,

and

capital

risk).

carrying

out

its

oversight

responsibilities,

each

committee

member

entitled

rely

the

integrity

and

expertise

those

people

providing

information

the committee

and

the

accuracy

and

completeness

such

information,

absent

actual

knowledge

inaccuracy.

The

Chief

Executive

Officer

appoints

the

Executive

Risk Management

Committee

and members

the Corporation’s

senior

and

executive management have

the opportunity to

share their insights about

the types of risks

that could impede

the Corporation’s

ability

to achieve

its business

objectives. The

Chief Risk

Officer

of the

Corporation directs

the agenda

for

the meetings

and the

Enterprise

Risk Management

(“ERM”) and

Operational Risk

Director serves

as secretary

of the

committee and

maintains the

minutes on

behalf

of the committee. The General Auditor also participates in the committee as an observer.

The

committee

provides

assistance

and

support

the

Chief

Risk

Officer

promote

effective

risk

management

throughout

the

Corporation.

The

Chief

Risk

Officer

and

the

ERM

and

Operational

Risk

Director

report

the

Committee

matters

the

enterprise risk management framework of the Corporation, including, but not

limited to:

●

The risk governance structure;

●

The risk assessments and profile of the Corporation;

●

The Corporation’s risk appetite statement

and risk tolerance;

●

The risk management

strategy and associated risk

management initiatives and

how both support the

business strategy

and business model of the Corporation; and

●

The Corporate Incident Response Program.

Other Management Committees

part

its

governance

framework,

the

Corporation

has

various

additional

risk

management-related

committees.

These

committees are

jointly responsible

for ensuring

adequate risk

measurement and

management in

their respective

areas of authority.

the management level, these committees include:

●

Management’s

Investment and

Asset Liability Committee

(the “MIALCO”)

– oversees interest

rate and market

risk, liquidity

management

and

other

matters,

including

sensitivity

the

Corporation’s

earnings

under

various

interest

rate

scenarios. This committee

makes recommendations as

to any adjustments to

asset liability management and

financial resource

allocation

light

current

events,

risks,

exposures,

and

regulatory

requirements

and

approves

policies.

Refer

“Liquidity Risk and Capital Adequacy”

and “Interest Rate Risk Management”

below for further details.

●

Information Technology

Steering Committee –

oversees and counsels

on matters related

to information

technology and cyber

security, including

the development of information management policies and procedures throughout

the Corporation.

●

Bank Secrecy Act Committee – oversees, monitors,

and reports on the Corporation’s compliance with

the Bank Secrecy Act.

●

Credit Committees (consisting

of a Credit Management

Committee and a Delinquency

Committee) – oversees

and establishes

standards for credit

risk management processes

within the Corporation.

The Credit Management

Committee is responsible

for

the approval

of loans

above an

established size

threshold. The

Delinquency Committee

is responsible

for the

periodic review

of credit exceptions,

past-due loans, portfolio

concentrations, foreclosures,

collection, loan mitigation

programs, risk appetite,

leveraged loans, business production and the Bank’s

internal credit-risk rating classification;

●

Vendor

Management

Committee

–

oversees

policies,

procedures,

and

practices

the

Corporation’s

vendor

management

efforts.

The

Vendor

Management

Committee’s

primary

functions

involve

the

establishment

processes

and

procedures to enable the recognition, assessment, management,

and monitoring of vendor management risks.

●

ESG Committee

– primarily

responsible for

aligning ESG

priorities and

initiatives for

the year,

setting and

monitoring long-

term objectives

and goals,

and leading

the annual

reporting process

on ESG

related topics.

The Committee

also oversees

the

sustainability policy

and integrates

climate change

risk factors

into the

corporate governance,

strategy and

risk management.

The ESG Committee regularly reports to the Corporate Governance

and Nominating Committee of the Board of Directors.

●

The Community

Reinvestment Act

Executive Committee

– oversees,

monitors,

and reports

on the

Corporation’s

compliance

with Community Reinvestment Act regulatory requirements.

●

Anti-Fraud

Committee

–

oversees

the

Corporation’s

policies,

procedures

and

practices relating

the

Corporation’s

anti-fraud measures.

●

Regulatory

Compliance

Committee

–

oversees

the

Corporation’s

Regulatory

Compliance

Management

System.

The

Regulatory

Compliance

Committee

reviews

and

discusses

any

regulatory

compliance

laws

and

regulations

that

impact

performance

regulatory

compliance

policies,

programs

and

procedures.

The

Regulatory

Compliance

Committee

also

ensures the coordination of regulatory compliance requirements throughout

departments and business units.

●

Regulatory Reporting Committee

– oversees and

assists the senior

officers in fulfilling

their responsibility for oversight

of the

accuracy

and

timeliness

the

required

regulatory

reports

and

policies

and

procedures,

addresses

changes

and/or

concerns

communicated

the

regulators,

and

addresses

issues

identified

during

the

regulatory

reporting

process.

The

Regulatory

Reporting

Committee

oversees

and

updates,

necessary,

the

established

controls

and

procedures

designed

ensure that information in regulatory reports is recorded, processed, and

accurately reported and on a timely basis.

●

Complaints

Management

Committee

–

assists

overseeing

the

complaint

management

process

implemented

across

the

Corporation.

The Complaints

Management

Committee

supports

the

Corporation’s

complaints management

program relating

to resolution of

complaints within the

lines of business.

When appropriate,

the Complaints Management

Committee evaluates

existing corrective actions within

the lines of business related

to complaints and complaint

management practices within those

business units.

●

Project Portfolio

Management Committee

– reviews

and oversees

the performance

of the portfolio

and individual

technology

projects

during

the

Project

Management

Cycle

(Initiation,

Planning,

Execution,

Control

Monitoring,

and

Closing).

The

Project

Portfolio

Management

Committee

balances

conflicting

demands

between

projects,

decides

priorities

assigned

each project

based on

organizational priorities

and capacity,

and oversees

project budgets,

risks, and

actions taken

to control

and mitigate risks.

●

Current Expected Credit Losses (“CECL”)

Committee – oversees the Corporation’s

requirements for the calculation of CECL,

including the implementation

of new models,

if necessary,

selection of vendors

and monitoring of the

guidance from different

regulatory

agencies

with

regards

CECL

requirements.

The

CECL

Committee

reviews

estimated

credit

loss

inputs,

key

assumptions, and

qualitative overlays.

In addition,

the Committee

approves the

determination of

reasonable and

supportable

periods

used

with

respect

to macroeconomic

forecasts,

and

the

historical

loss reversion

method

and

parameters.

The CECL

Committee reports to the Audit Committee the results of the ACL each reporting period.

●

Capital Planning

Committee –

oversees the

Capital Planning

Process and

is responsible

for operating

in accordance

with the

Capital

Policy

and

ensuring

compliance

with

its

guidelines.

The

Capital

Planning

Committee

develops

and

proposes

the

Board

changes

the

Capital

Policy

and

the

capital

plan

targets,

limits,

performance

metrics,

internal

stress

testing

and

guidelines for Capital Management Activities.

●

Business Continuity

Committee –

responsible to

create governance

and planning

structure that

will enable

FirstBank to

craft

an enterprise

Business Continuity Management

(BCM) program

that ensures the

Bank is able

to continue business

operations

after a major disruption occurs.

●

Emergency Committee

– Responsible

to activate

an emergency

or disaster

recovery procedure

to ensure

the safety

of Bank’s

personnel and the continuity of critical Bank services.

●

Data

Governance

Council

–

Responsible

for

ensuring

the

effective

governance

data

assets.

This

includes

establishing

policies,

standards,

and

procedures

promote

data

quality,

security,

compliance,

and

strategic

data

utilization.

The

Data

Governance Council reports to the Executive Risk Management Committee.

Officers

As part of its governance framework, the following officers

play a key role in the Corporation’s risk

management process:

●

The Chief Executive

Officer (“CEO”) is

responsible for the

overall risk governance

structure of the Corporation.

The CEO is

ultimately responsible for business strategies, strategic objectives, risk management

priorities, and policies.

●

The General Auditor

is responsible for leading

the corporate internal audit

function and reporting matters

directly to the Audit

Committee and administratively to the CEO.

●

The

Chief Operating

Officer

(“COO”)

manages

the Corporation’s

operational

framework,

including

information

technology

(“IT”),

facilities,

banking

operations,

corporate

security,

and

enterprise

architecture.

The

COO

oversees

the

effective

and

efficient execution of the various technology initiatives

to support the Corporation’s growth and

improve overall efficiency.

●

The

Chief

Information

Officer

(“CIO”)

is responsible

for

overseeing

technology

services provided

by IT

vendors

including

the following:

(i) the fulfillment

of contractual

obligations and

responsibilities; (ii)

the development

of policies and

standards

the

technology;

(iii)

services

provided;

(iv)

Service

Level

Agreement

(SLA)

metrics

and

compliance;

and

the

Business

Continuity

Strategy.

The

Corporate

Data

Officer

works

with

the

CIO

the

supervision

the

Data

Governance

practices.

●

The Corporate

Security Officer

(“CISO”) leads the

Corporate Security

Office (“CSO”),

which manages

the controls designed

to identify,

detect,

protect against,

respond

to, and

recover from

physical and

logical

events,

including

cybersecurity threats

and cybersecurity

incidents. The

CSO is responsible

for developing

and implementing

a CISP that

protects

the organization's

data and systems. The Corporation

engages in a continuous

risk monitoring process that

seeks to identify internal

and external

threats

our

information

security

systems

and

data

and

assesses

the

sufficiency

the

controls

place

mitigate

these

threats to acceptable levels on a risk-based basis. The CISO reports on a regular basis to

the Risk Committee on the CISP.

●

The Chief Credit

Officer is responsible

for the approval

of loans and

for reporting to

the Board regarding

Credit Management

activities

required

lending

authorities.

The

Chief

Credit

Officer,

Portfolio

Risk

Manager,

Loan

Review

Manager

and

other

Senior

Executives

are

responsible

for

managing

and

executing

the

Corporation’s

credit

risk

program.

The

credit

risk

program aims

to i)

maintain the

quality of

the Corporation’s

credit portfolio,

ii) review

the trends

affecting the

portfolio, and

iii) oversee the effectiveness and administration of credit-related

policies.

●

The

Chief

Financial

Officer

(“CFO”),

together

with

the

Corporation’s

Treasurer

and

the

Asset

and

Liability

Management

(“ALM”)

Director,

manage

the

Corporation’s

interest

rate

and

market

and

liquidity

risk

programs,

including

the

liquidity

stress testing

and policy

limits. The

CFO supervises

Capital Planning

and Capital

Stress Testing.

The CFO,

jointly with

the

Chief Accounting

Officer (“CAO”)

and the

Corporate Controller,

are responsible

for the development

and implementation

the

Corporation’s

accounting

policies

and

practices

and

the

review

and

monitoring

critical

accounts

and

transactions

ensure that they are reported in accordance with GAAP and the applicable

regulatory requirements for financial and regulatory

reporting purposes.

●

The Corporate Strategic

and Business Development

Director is responsible

for the development

of the Corporation’s

strategic

and

business

plan,

coordinating

and

collaborating

with

the

executive

team

and

all

corporate

groups

involved

with

the

strategic and business planning process.

●

The

Corporate

Strategy

and

Investor

Relations

Officer

responsible

for

managing

communications

with

the

investor

community

and

sell-side

research

analysts

and

for

coordinating

and

collaborating

with the

executive

team

and

all corporate

groups involved with the adequate execution of the strategic and business planning

process.

●

The Chief Risk Officer

(“CRO”) is responsible for

the oversight of the

risk management of the

Corporation as well as

the risk

governance

processes.

The

CRO, together

with

the

ERM

and

Operational

Risk Director,

monitor

key

risks

and

manage the

operational

risk

program.

The

CRO

provides

the

leadership

and

strategy

for

the

Corporation’s

risk

management

and

monitoring

activities and

is responsible

for the

oversight

of regulatory

compliance, loan

review,

model risk,

and operational

risk

management.

The

CRO

supervises

talent

management

efforts,

maintains

adequate

succession

planning

practices

and

promotes

employee

engagement.

The

Human

Resources

Director

supports

the

CRO

the

human

capital

and

talent

management efforts.

The CRO reports

regularly to the

Risk Committee of

the Board on

risk management activities

including

risk

assessments,

risk

tolerances,

regulatory

matters,

and

emerging

risks.

The

CRO

co-leads

with

the

CFO

the

CECL/allowance quarterly financial assessment.

●

The

ERM

and

Operational

Risk

Director

responsible

for

driving

the

identification,

assessment,

measurement,

mitigation,

and

monitoring

key

risks

throughout

the

Corporation.

The

ERM

and

Operational

Risk

Director

promotes

and

instills

culture

risk

control,

identifies

and

monitors

the

resolution

major

and

critical

operational

risk

issues

across

the

Corporation

and serves

as a

key

advisor

to business

executives with

regards

to risk

exposure

to the

organization,

corrective

actions

and

corporate

policies

and

best

practices

mitigate

risks.

ERM

and

Operational

Risk

Director

also

supervises

the

Corporate

Incident Response

Program.

The Financial

and Model

Risk Manager,

IT Risk

Manager,

Retail Quality

Assurance

Manager,

Regulatory

Affairs

Manager

and

Corporate

Risk

Managers

assist

the

ERM

and

Operational

Risk

Director

the

monitoring of

key risks

and oversight

of risk

management practices.

The ERM

and Operational

Risk Director

assist the

CFO

the

review

and

oversight

the

Corporation’s

internal

control

over

financial

reporting

and

disclosure

controls

and

procedures.

●

The

Compliance

Director

responsible

for

oversight

regulatory

compliance.

The

Compliance

Director

implements

enterprise-wide compliance

risk assessment,

and monitors

compliance with

significant regulations.

The Compliance

Director

is responsible for building awareness of and educating business units and subsidiaries

on, regulatory risks.

●

The General

Counsel is

responsible

for

the oversight

of legal

risks, including

matters such

as contract

structuring,

litigation

risk,

and

all

legal-related

aspects

the

Corporation’s

business.

The

Corporate

Affairs

Officer

assists

the

General

Counsel

with various

legal areas,

including,

but not

limited to

SEC reporting

matters, insurance

coverage

and liability,

and

the ESG

Program.

Liquidity

Risk

and

Capital

Adequacy,

Interest

Rate

Risk

Management,

Credit

Risk

Management,

Operational

Risk,

Legal

and Compliance Risk and Concentration Risk

The

following

discussion

highlights

First

BanCorp.’s

adopted

policies

and

procedures

for

liquidity

risk

and

capital

adequacy,

interest rate risk, credit risk, operational risk, legal and compliance risk,

and concentration risk.

Liquidity Risk and Capital Adequacy

Liquidity

risk

involves

the

ongoing

ability

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

meet

liquidity

needs

and

accommodate

fluctuations

asset

and

liability

levels

due

changes

the

Corporation’s

business

operations

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

the

liquidity

the

banking

subsidiary,

FirstBank.

The Asset

and Liability

Committee of

the Board

is responsible

for overseeing

management’s

establishment of

the Corporation’s

liquidity

policy,

well

approving

operating

and

contingency

procedures

and

monitoring

liquidity

ongoing

basis.

The

MIALCO, which

reports to

the Board’s

Asset and

Liability Committee,

uses measures

of liquidity

developed by

management that

involve

the use

several

assumptions

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

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 Treasury

and Investments

Accounting and

Operations area

of the

Corporate Controller’s

Department is

responsible for

calculating the

liquidity measurements

used

the

Treasury

and

Investment

Division

review

the

Corporation’s

liquidity

position

weekly

basis.

The

Financial

Planning and ALM Division is responsible for estimating the liquidity gap for

longer periods.

ensure

adequate liquidity

through the

full range

of potential

operating

environments and

market conditions,

the Corporation

conducts

its

liquidity

management

and

business

activities

manner

that

intended

preserve

and

enhance

funding

stability,

flexibility,

and

diversity.

Key

components

this

operating

strategy

include

strong

focus

the

continued

development

customer-based

funding, the

maintenance

of direct

relationships with

wholesale

market funding

providers, and

the maintenance

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

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:

credit rating

downgrade,

economic

cycle downturn

event,

and

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 $663.2 million as of December

31, 2023,

compared to $480.5 million as of December 31, 2022. When adding

$2.2 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

$2.8

billion

December

31,

2023,

14.93%

total

assets, compared to $3.5 billion, or 19.02% of total assets as of December

31, 2022.

addition

the

aforementioned

$2.8

billion

cash

and

free

high

quality

liquid

assets,

the

Corporation

had

$924.2

million

available

for

credit

with

the FHLB

based

the

value

loan

collateral

pledged

with

the

FHLB.

such,

the

basic

liquidity

ratio

(which adds available

secured lines of credit

to the core liquidity)

was approximately 19.82%

of total assets as

of December 31,

2023,

compared to 22.48% of total assets as of December 31, 2022.

Further,

the

Corporation

also

maintains

borrowing

capacity

the

FED

Discount

Window.

The

Corporation

does

not

consider

borrowing capacity

from the FED

Discount Window

as a primary

source of liquidity

but had approximately

$1.5 billion

available for

funding under

the FED’s

Borrower-in-Custody

(“BIC”) Program

as of

December 31,

2023 as

a contingent

source of

liquidity.

Total

loans

pledged

the

FED

BIC Program

amounted

to $2.5

billion

as of

December

31,

2023.

The

Corporation

also

does not

rely

uncommitted

inter-bank

lines

credit

(federal

funds

lines)

fund

its

operations

and

does

not

include

them

the

basic

liquidity

measure. On

a combined

basis, as of

December 31,

2023, the

Corporation had

$5.2 billion,

or 118%

of uninsured

estimated deposits,

excluding fully collateralized government deposits, available to meet

liquidity needs.

Liquidity

the Bank

level

is highly

dependent

bank deposits,

which

fund

87.7%

of the

Bank’s

assets (or

83.6%

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

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

its

customers.

These

financial

instruments

may

include

loan

commitments

and

standby

letters

credit.

These

commitments

are

subject

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 December

31, 2023,

the Corporation’s

commitments to

extend credit

amounted to

approximately $2.0

billion.

Commitments

extend

credit

are

agreements

lend

customer

long

there

violation

any

condition

established

the

contract.

Since

certain

commitments

are

expected

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

reevaluate

the

agreement

prior

additional

disbursements.

There

have

been

significant

unexpected

draws

existing commitments. In the case of

credit cards and personal lines

of credit, the Corporation can

cancel the unused credit facility

any time and without cause.

The following table summarizes commitments to extend credit and standby letters of

credit as of the indicated dates:

December 31,

2023

December 31, 2022

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

234,974

170,639

Unused credit card lines

882,486

936,231

Unused personal lines of credit

38,956

41,988

Commercial lines of credit

862,963

761,634

Letters of credit:

Commercial letters of credit

69,543

68,647

Standby letters of credit

8,313

9,160

The

Corporation

engages

the ordinary

course

of business

other

financial

transactions

that

are not

recorded

on the

balance

sheet

may

recorded

the

balance

sheet

amounts

that

are

different

from

the

full

contract

notional

amount

the

transaction

and, thus,

affect

the Corporation’s

liquidity position.

These transactions

are designed

to (i)

meet the

financial needs

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 December

31,

2023.

Our

material

cash

requirements

comprise

primarily

contractual

obligations

make

future

payments

time

deposits,

long-term

borrowings,

and operating

lease obligations.

also have

other contractual

cash obligations

to certain

binding agreements

we have

entered into

for services

including outsourcing

of technology

services, security,

advertising and

other

services

which

are

not

material

our

liquidity

needs.

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

funding

sources

great

importance

protect

the

Corporation’s

liquidity

from

market

disruptions.

The

principal

sources

short-term

funding

are

deposits,

including

brokered

CDs.

Additional

funding

provided

securities

sold

under

agreements

repurchase

and

lines

credit

with

the

FHLB.

addition,

the

Corporation

also

maintains

additional

contingent

sources

borrowing

capacity

the

FED’s

BIC

Program

and

the

FED’s

BTFP,

which

provides

additional

short-term

source of funding until March 11, 2024.

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

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 foreseeable future.

The Corporation’s principal sources of

funding are discussed below:

Deposits

The following table presents the composition of total deposits as of the indicated

dates:

As of December 31,

2023

2022

(Dollars in thousands)

Interest-bearing checking accounts

3,937,945

3,770,993

Interest-bearing saving accounts

3,596,855

3,902,888

Time deposits

3,617,064

2,356,702

Interest-bearing deposits

(1)

11,151,864

10,030,583

Non-interest-bearing deposits

5,404,121

6,112,884

Total

16,555,985

16,143,467

Interest-bearing deposits:

Average balance

outstanding

10,603,935

10,562,159

Weighted average

rate during the period on interest-bearing deposits

1.75%

0.44%

Non-interest-bearing deposits:

Average balance

outstanding

5,741,345

6,391,171

(1)

The weighted-average interest rate on total interest-bearing deposits

as of December 31, 2023 and 2022 was 2.24% and 1.03%,

respectively.

Retail

and

commercial

core

deposits

–

The

Corporation’s

deposit

products

include

regular

saving

accounts,

demand

deposit

accounts,

money

market

accounts,

and

retail

CDs.

December

31,

2023,

the

Corporation’s

core

deposits,

which

exclude

government deposits and brokered CDs, decreased by $667.9

million to $12.6 billion from $13.3 billion as of December

31, 2022. The

decrease was

primarily related

to non-interest

bearing and

saving deposits

across all

regions. Notwithstanding,

these reductions

were

partially

offset

increase

time

deposits,

including

shift

from

non-interest

bearing

low-interest

bearing

products

time

deposits,

driven

higher

market

interest

rates.

Over

the

last year,

the

Federal

Reserve

Board’s

policies

control

the

inflationary

economic environment,

including repeated

market interest

rate increases,

have resulted

in excess

liquidity gradually

tapering off

and

impacting

the

Corporation’s

core

deposit

balances.

Further

shifts

may

continue

increase

the

overall

cost

funding

for

the

Corporation and adversely affect the net interest margin.

Government

deposits

(fully

collateralized)

–

December

31,

2023,

the

Corporation

had

$2.7

billion

Puerto

Rico

public

sector deposits

($2.6 billion

in transactional

accounts and

$137.2 million

in time

deposits), compared

to $2.3

billion as

of December

31, 2022.

The increase

was related

to higher

balances of

interest-bearing transactional

accounts.

Government deposits

are insured

the

FDIC

the

applicable

limits

and

the

uninsured

portions

are

fully

collateralized.

Approximately

20%

the

public

sector

deposits

December

31,

2023

were

from

municipalities

and

municipal

agencies

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

December 31,

2023, the

Corporation had

$449.4

million of

government deposits

in the

Virgin

Islands region

compared

$442.8

million

December

31,

2022

and

$10.2

million

the

Florida

region

compared

$11.6

million

December 31, 2022.

The uninsured

portions

of government

deposits were

collateralized

by securities

and

loans with

an amortized

cost of

$3.5

billion

and

$3.1

billion

December

31,

2023

and

2022,

respectively,

and

estimated

market

value

$3.1

billion

and

$2.7

billion,

respectively.

In addition

to securities

and loans,

as of

December 31,

2023 and

2022, the

Corporation used

$175.0 million

and $200.0

million, respectively,

in letters of credit issued by the FHLB as pledges for a portion of public deposits in the Virgin

Islands.

Estimate

Uninsured

Deposits

–

December

31,

2023

and

2022,

the

estimated

amount

uninsured

deposits

totaled

$7.4

billion and

$7.3 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.

The balances presented as of

December 31, 2023 and

2022 include the uninsured

portion

fully

collateralized

government

deposits

which

amounted

$3.0

billion

and

$2.6

billion,

respectively.

Excluding

fully

collateralized government

deposits, the

estimated amount

of uninsured

deposits amounted

to $4.4

billion, which

represent 28.13%

total deposits

(excluding

brokered CDs),

as of

December

31, 2023,

compared to

$4.7 billion,

or 29.43%,

as of

December 31,

2022.

During the fourth quarter

of 2023, Management was able

to obtain information at the

participant level for a

specific retirement deposit

account,

which resulted in the

exclusion of such account from the estimate of uninsured deposits as of December

31, 2023 and 2022.

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 December

31, 2023:

(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

328,227

145,423

294,847

249,564

1,018,061

Other uninsured time deposits

16,597

9,090

22,063

4,694

52,444

Brokered

CDs

–

Total

brokered

CDs increased

$677.5

million

$783.3

million

as of

December

31,

2023,

compared

$105.8

million

as of

December

31,

2022.

The increase

reflects

the

effect

of new

issuances

amounting

to $1.3

billion

with

an all-in

cost

5.26%,

partially offset

by approximately

$583.0

million of

maturing

brokered

CDs, with

an all-in

cost of

5.02%, that

were paid

off

during 2023.

The average remaining term to maturity of the brokered CDs outstanding

as of December 31, 2023 was approximately 11

months.

The increased use of

brokered CDs in our Puerto

Rico and Florida regions

was primarily driven by

short-term funding needs due

the overall

decrease in deposits.

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

the

FDIC up

regulatory

limits and

can

obtained faster than regular retail deposits.

The following table presents the contractual maturities of brokered CDs as of December

31,

2023:

Total

(In thousands)

Three months or less

195,308

Over three months to six months

174,591

Over six months to one year

330,963

Over one year to three years

22,574

Over three years to five years

44,466

Over five years

15,432

Total

783,334

Refer to

“Net Interest

Income” above

for information

about average

balances of

interest-bearing deposits

and the

average interest

rate paid on such deposits during 2023, 2022, and 2021.

Borrowings

As of December 31, 2023, total borrowings amounted to $661.7 million, compared

to $933.9 million as of December 31, 2022.

The following table presents the composition of total borrowings as of the indicated

dates:

Weighted Average

Rate as of

As of December 31,

December 31, 2023

2023

2022

(Dollars in thousands)

Short-term fixed-rate repurchase agreements

75,133

Short-term fixed-rate advances from the FHLB

475,000

Long-term fixed-rate advances from the FHLB

4.45%

500,000

200,000

Variable

-rate long-term borrowings

8.20%

161,700

183,762

Total

5.37%

661,700

933,895

Securities

sold

under

agreements

repurchase

December

31,

2023,

there

were

outstanding

repurchase

agreements

(December 31, 2022 – $75.1 million).

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

member

the

FHLB

system

and

obtains

advances

fund

its

operations

under

collateral

agreement

with

the

FHLB

that

requires

the

Bank

maintain

qualifying

mortgages

and/or

investments

collateral

for

advances

taken.

As of

December

31,

2023,

the

outstanding

balance

fixed-rate

FHLB

advances

was $500.0

million,

compared

$675.0

million

December

31,

2022.

During

2023,

the

Corporation

added

$300.0

million

long-term

FHLB

advances

average cost

of 4.59%

and repaid

its short-term

FHLB advances.

Of the

$500.0 million

in FHLB advances

as of December

31, 2023,

$400.0 million

were pledged

with investment

securities and

$100.0 million

were pledged

with mortgage

loans. As

of December

31,

2023,

the

Corporation

had

$924.2

million

available

for

additional credit

on FHLB

lines

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

the

Corporation’s

consolidated

statements

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

any

time

and

from

time

during

the

term

the

subordinated

debentures

for

twenty

consecutive

quarterly periods.

During

2023,

the

Corporation

completed

the

repurchase

$21.4

million

TRuPs

the

FBP

Statutory

Trust

part

privately-negotiated transaction, resulting

in a commensurate reduction

in the related floating rate

junior subordinated debentures.

The

purchase price

equated to

92.5% of

the $21.4

million par

value of

the TRuPs.

The 7.5%

discount resulted

in a gain

of approximately

$1.6 million,

which is reflected

in the consolidated

statements of income

as “Gain on

early extinguishment

of debt.” As

of December

31,

2023

and

2022,

the Corporation

had

junior

subordinated

debentures

outstanding

in the

aggregate

amount

of $161.7

million

and

$183.8 million, respectively,

with maturity dates

ranging from June

17, 2034 through

September 20, 2034.

As of December

31, 2023,

the Corporation

was current

on all

interest payments

due on

its subordinated

debt. See

Note 14

– “Other

Borrowings”

and Note

10 –

“Non-Consolidated Variable

Interest Entities (“VIEs”) and Servicing

Assets” to the audited consolidated

financial statements included

in Part II, Item 8 of this Form 10-K for additional information.

Other Sources

of Funds and

Liquidity

- The Corporation’s

principal uses of

funds are for

the origination of

loans, the repayment

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 FHA,

VA,

U.S. Department

of Housing

and

Urban Development (“HUD”), FNMA

and FHLMC. During 2023

loans pooled into GNMA MBS amounted

to approximately $125.4

million. Also, during

2023, the Corporation

sold approximately $29.8

million of performing

residential mortgage

loans to FNMA and

FHLMC.

The FED Discount Window

is a cost-efficient contingent

source of short-term funding for the

Corporation in highly-volatile market

conditions.

previously

mentioned,

December

31,

2023,

the

Corporation

had

approximately

$1.5

billion

fully

available

for

funding under the FED’s Discount

Window and BTFP.

Effect of Credit Ratings on Access to Liquidity

The

Corporation’s

liquidity

contingent

upon

its

ability

obtain

deposits

and

other

external

sources

funding

finance

its

operations.

The Corporation’s

current credit

ratings and

any downgrade

in credit

ratings can

hinder the

Corporation’s

access to

new

forms

external

funding

and/or

cause

external

funding

expensive,

which

could,

turn,

adversely

affect

its

results

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

long-term

issuer

are

BB+

S&P,

one

notch

below

S&P’s

minimum

BBB-

level

required

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

number

factors,

both

quantitative

and

qualitative,

and

are

subject

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

$663.2

million

December

31,

2023,

increase

$182.7

million

when

compared

December

31,

2022.

The

following

discussion

highlights

the

major

activities

and

transactions

that

affected

the

Corporation’s

cash

flows during 2023 and 2022:

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

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 years ended December

31, 2023 and 2022, net

cash provided by operating activities

was $363.0 million and

$440.5 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. The

decrease in net cash provided

by operating activities was driven

by an

increase in

income taxes

paid during

2023, reflecting

the effect

in 2022

of the

full utilization

of certain

deferred tax

assets related

NOLs

that

were

available

for

regular

income

tax

and

lower

volume

and

margins

sales

residential

mortgage

loans

the

secondary market.

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 year ended December

31, 2023, net cash used in

investing

activities

was

$78.5

million,

primarily

due

net

disbursements

loans

held

for

investment,

partially

offset

repayments

available-for-sale and held-to-maturity debt securities and proceeds

from sales of repossessed assets.

For

the

year

ended

December

31,

2022,

net

cash

used

investing

activities

was

$681.5

million,

primarily

due

purchases

available-for-sale

and

held-to-maturity

debt

securities,

and

net

disbursements

loans

held

for

investment,

partially

offset

repayments of available-for-sale and held-to-maturity

debt securities and proceeds from sales of commercial loan participations.

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 year ended December 31, 2023, net

cash used in financing activities was $101.9 million, mainly reflecting

a $269.9 million net

decrease

borrowings

and

$299.7

million

capital

returned

stockholders,

partially

offset

$471.0

million

net

increase

deposits.

For the

year ended

December 31,

2022, net

cash used

in financing

activities was

$1.8 billion,

mainly reflecting

a $1.7

billion net

decrease in

deposits and

$362.8 million

of capital

returned to

stockholders. These

variances were

partially offset

by a

$250.1 million

net increase in borrowings.

Capital

As of

December 31,

2023, the

Corporation’s

stockholders’ equity

was $1.5

billion, an

increase of

$172.1 million

from December

31, 2022. The increase was driven by a $165.4

million increase in the fair value of available-for-sale debt securities

recorded as part of

accumulated

other

comprehensive

loss

the

consolidated

statements

financial

condition

and

net

income

generated

2023,

partially

offset

$200.0

million

repurchases

common

stock

and

common

stock

dividends

declared

2023

totaling

$99.6

million or $0.56 per common share.

On February

8, 2024, the

Corporation’s

Board declared

a quarterly cash

dividend of $0.16

per common

share, which represents

increase of

$0.02 per

common share,

or a

14% increase,

compared to

its most

recent quarterly

dividend paid

in December

2023. The

dividend is payable on March 8, 2024 to shareholders of record

at the close of business on February 23, 2024. The Corporation

intends

continue

pay

quarterly

dividends

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.

During 2023,

the Corporation

repurchased 14.1

million shares of

its common

stock for

a total cost

of $200.0

million, of

which 9.0

million shares,

for a total

cost of $125.0

million, were associated

with the remaining

amount of the

2022 capital plan

authorization of

$350

million

and

5.1

million

shares,

for

total

cost

$75.0

million,

were

associated

with

the

2023

capital

plan

authorization

$225.0

million.

Repurchases

under

the

aforementioned

$225.0

million

stock

repurchase

program

may

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

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

February 21,

2024, the

Corporation has

repurchased approximately

7.1 million

shares of

common stock

for a

total

cost of

$107.9 million

under the

$225 million

stock repurchase

program approved

in July

2023. 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.

The tangible common

equity ratio and

tangible book value

per common share

are non-GAAP financial

measures generally used

the

financial

community

evaluate

capital

adequacy.

Tangible

common

equity

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

reconciliation

the

Corporation’s

tangible

common

equity

and

tangible

assets,

non-GAAP

financial

measures, to total equity and total assets, respectively,

as of December 31,

2023 and 2022, respectively:

December 31,

2023

December 31, 2022

(In thousands, except ratios and per share information)

Total equity

- GAAP

1,497,609

1,325,540

Goodwill

(38,611)

Purchased credit card relationship intangible

(205)

Core deposit intangible

(13,383)

(20,900)

Insurance customer relationship intangible

(13)

Tangible common

equity - non-GAAP

1,445,615

1,265,811

Total assets - GAAP

18,909,549

18,634,484

Goodwill

(38,611)

Purchased credit card relationship intangible

(205)

Core deposit intangible

(13,383)

(20,900)

Insurance customer relationship intangible

(13)

Tangible

assets - non-GAAP

18,857,555

18,574,755

Common shares outstanding

169,303

182,709

Tangible common

equity ratio - non-GAAP

7.67%

6.81%

Tangible book

value per common share - non-GAAP

8.54

6.93

See Note 29

– “Regulatory

Matters, Commitments and

Contingencies” to

the audited

consolidated financial

statements included

the Part II,

Item 8 of

this Form 10-K

for the discussion

related to the

regulatory capital positions

of the Corporation

and FirstBank as

of December 31, 2023 and 2022, respectively.

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”)

requires

that

minimum

10%

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

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

charged

against

the

undistributed

profits

the

bank,

and

the

balance,

any,

must

charged

against

the

legal

surplus

reserve,

reduction

thereof.

the

legal

surplus

reserve

not

sufficient

cover

such

balance

whole

part,

the

outstanding

amount

must

be charged

against

the

capital

account

and

the

Bank

cannot

pay

dividends

until

can

replenish

the

legal

surplus reserve to

an amount of at

least 20% of

the original capital contributed.

During the years ended

December 31, 2023, 2022

and

2021, the Corporation transferred $31.1 million, $30.9

million and $28.3 million, respectively,

to the legal surplus reserve. FirstBank’s

legal

surplus

reserve,

included

part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted to $199.6 million and $168.5 million as of December 31, 2023

and 2022, respectively.

Capital risk is

the risk that

our capital is

insufficient to

support our business

activities under normal

and stressed market

conditions

or we

face capital

reductions

or risk-weighted

assets increases,

including

from

new or

revised rules

or changes

in interpretations

existing

rules,

and

are

therefore

unable

meet

our

internal

capital

targets

external

regulatory

capital

requirements.

Capital

adequacy

is of

critical importance

to us.

Accordingly,

we have

in place

a comprehensive

capital management

policy that

provides a

framework, defines objectives

and establishes guidelines

to maintain an

appropriate level and

composition of capital

in both business-

as-usual

and

stressed

conditions.

Our

capital

management

framework

designed

provide

with

the

information

needed

comprehensively manage risk and

develop and apply projected

stress scenarios that capture

idiosyncratic vulnerabilities with

a goal of

holding

sufficient

capital

remain

adequately

capitalized

even

after

experiencing

severe

stress

event.

have

established

comprehensive governance

structure to

manage and

oversee our

capital management

activities and

compliance with

capital rules

and

policies.

Capital

planning

activities

are

overseen

the

Capital

Planning

Committee

which

chaired

the

CEO

and

comprised

the

following

members:

the

CFO,

CRO,

and

the

Corporate

Strategy

and

Investor

Relations

Officer.

addition,

committees

and

members

senior

management

are

responsible

for

the

ongoing

monitoring

our

capital

adequacy

and

evaluate

current and

future regulatory

capital requirements,

review the

results of

our capital

planning and

stress tests

processes and

the results

our

capital models,

and

review

our

contingency

funding and

capital

plan

and

key

capital adequacy

metrics,

including

regulatory

capital ratios.

Interest Rate Risk Management

First

BanCorp

manages

its

asset/liability

position

limit

the

effects

changes

interest

rates

net

interest

income

and

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

proposed

changes

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

future

earnings

from

projected

changes

interest

rates.

These

simulations

are

carried

out

over

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

the

yield

curve

200

and

300

basis

points

(“bps”)

during

twelve-month

period,

immediate

upward

downward

changes

interest

rate

movements

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

the

sensitivity

net

interest

income

changes

market

interest

rates.

Several

benchmark

and

market

rate

curves

were

used

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

December 31,

2023, the

Corporation forecasted

the 12-month

net interest

income assuming

December 31,

2023 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

December

31,

2023,

as compared

with

December

31,

2022,

reflects

increase

bps

average

the

short-term

sector

the

curve,

between

one

twelve

months;

decrease

bps

the

medium-term

sector

the

curve,

between 2

to 5

years; and

a decrease

of 7

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 75 bps

in the short-term sector,

decrease of 18 bps in the medium-term sector,

and an increase of 4 bps in the long-term sector.

The following table presents the results of the static simulations as of December 31,

2023 and 2022. 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)

December 31,

2023

December 31, 2022

Gradual Change in Interest Rates:

+ 300 bps ramp

1.08

1.42

+ 200 bps ramp

0.73

0.96

- 300 bps ramp

-3.09

-2.78

- 200 bps ramp

-2.02

-1.61

Immediate Change in Interest Rates:

+ 200 bps shock

2.45

2.35

- 200 bps shock

-5.67

-4.71

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 “Liquidity Risk Management”

above for liquidity ratios.

December

31,

2023,

and

2022,

the

net

interest

income

simulations

show

that

the

Corporation

continues

have

asset

sensitive position for the next twelve months under a static balance sheet simulation.

Under

gradual

rising

scenarios,

the

net

interest

income

simulation

shows

reduction

interest

rate

sensitivity

compared

with

December

31,

2022,

due

higher

sensitivity

the

liability

side.

The

increase

sensitivity

the

liabilities

side

reflects

shifts

funding mix,

including an

increased migration

from non-interest-bearing

deposits and other

low-cost deposits

to higher-cost

deposits,

increase

the

average

balance

brokered

CDs,

and

updated

assumptions

about

depositor

behavior,

impacting

both

beta

and

decay assumptions, as a result

of the higher interest rate

environment, and options outside

the traditional banking sector.

However, the

falling rates

scenarios show

an increase

in interest

rate sensitivity,

as compared

with December

31, 2022,

due to

lower sensitivity

the

liability

side

result

lower

level

beta

assumptions

than

the

rising

rate

scenarios

that

were

applied

anticipation

pricing pressures,

deposits competition

and retention

strategies. Notwithstanding,

the sensitivity

in the

asset side

remained relatively

consistent, when compared to December 31, 2022.

Under the

static simulation,

the Corporation

assumes that

maturing instruments

are replaced

with like

instruments at

the repricing

rate with

the proportional

remaining change

in interest

rate in

the period

that the

instrument matures.

The Corporation’s

results may

vary

significantly

from

the

ones

presented

above

under

alternative

balance

sheet

compositions,

such

dynamic

balance

sheet

scenario

which,

for

example,

would

assume

that

cash

flows

from

the

investment

securities

portfolio

and

loan

repayments

will

redeployed into higher yielding alternatives.

Derivatives

First

BanCorp.

uses derivative

instruments

and

other

strategies

manage

its exposure

interest

rate

risk

caused

changes

interest rates beyond management’s

control.

December

31,

2023

and

2022,

the

Corporation

considered

all

its

derivative

instruments

undesignated

economic

hedges.

For

detailed

information

regarding

the

volume

derivative

activities

(e.g.,

notional

amounts),

location

and

fair

values

derivative

instruments

the

consolidated

statements

financial

condition

and

the

amount

gains

and

losses

reported

the

consolidated

statements

income,

see

Note

–

“Derivative

Instruments

and

Hedging

Activities”

the

audited

consolidated

financial statements included in Part II, Item 8 of this Form 10-K.

Credit Risk Management

First BanCorp.

is subject

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

for

loans

made

the

Bank.

See

“Liquidity

Risk

and

Capital

Adequacy”

above

for

further

details.

The

Corporation

manages

its

credit

risk

through

its

credit

policy,

underwriting,

monitoring

loan

concentrations

and

credit

quality,

counterparty

credit

risk,

economic

and

market

conditions,

and

legislative

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

default

the

securities

portfolio.

The

securities

held

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

significant

input

for

the

estimation

expected

credit

losses,

well

adjustments

historical

loss

information

made

for

differences in current loan-specific

risk characteristics, such as differences

in underwriting standards, portfolio mix,

delinquency level,

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

subject

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

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

each

scenario

for

the

different

loan

portfolio

categories

depend

variety

factors

including

recent

economic

events,

leading

national

and

regional

economic

indicators,

and

industry

trends.

December

31,

2023,

the

Corporation

applied

the

baseline

scenario

for

the

commercial

mortgage

and

construction

loan

portfolios

deterioration

the

commercial

real

estate

price

index

(“CRE

price

index”)

these

portfolios

was

expected

lower

extent

than

projected

the

alternative

downside

scenario.

The

economic

scenarios

used

the

ACL

determination

contained

assumptions

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

December 31,

2023, the

Corporation’s

ACL model

considered the

following assumptions

for key economic variables in the probability-weighted economic scenarios:

●

CRE

price

index

the

national

level

with

average

projected

contraction

5.94%

for

the

year

2024

and

average

projected appreciation of

2.01 % for the

year 2025, compared to

an average projected

contraction of 1.64% for

the year 2023

and an average projected appreciation of 0.74% for the year 2024

as of December 31, 2022.

●

Regional

Home Price Index forecast in Puerto Rico (purchase only prices) shows an improvement

of 7.65% for the year 2024

when compared to the same period as of December 31, 2022. For the

Florida region, the Home Price Index forecast shows an

improvement of 11.28% for the year 2024

when compared to the same period as of December 31, 2022.

●

Average

regional

unemployment

rate

Puerto

Rico

forecasted

7.16%

for

the

year

2024,

compared

8.58%

for

the

same period as of December 31, 2022. For the Florida region, the average

unemployment rate for the year 2024 is expected to

remain flat

when compared

to the

same period

as of December

31, 2022.

For the

U.S. mainland,

the average unemployment

rate is forecasted at 4.61% for the year 2024, compared to 4.54% for the same period

as of December 31, 2022.

●

Annualized change

in GDP

in the

U.S. mainland

of 1.13%

for the

year 2024,

compared to

1.87% for

the same

period as

December 31, 2022.

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

December 31,

2023, 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

7.62%

for

the

year

2024,

compared

7.16%

for

the

same

period

the

probability-

weighted economic scenario projections.

demonstrate the

sensitivity to key

economic parameters used

in the calculation

of the ACL

at December

31, 2023, management

calculated

the

difference

between

the

quantitative

ACL

and

this

adverse

scenario.

Excluding

consideration

qualitative

adjustments, this sensitivity analysis would

result in a hypothetical increase in

the ACL of approximately $45

million at December 31,

2023.

This analysis

relates only

to the

modeled credit

loss estimates

and is

not intended

to estimate

changes in

the overall

ACL as

does

not

reflect

any

potential

changes

other

adjustments

the

qualitative

calculation,

which

would

also

influenced

the

judgment

management

applies

the

modeled

lifetime

loss

estimates

reflect

the

uncertainty

and

imprecision

these

estimates

based

current

circumstances

and

conditions.

Recognizing

that

forecasts

macroeconomic

conditions

are

inherently

uncertain,

particularly in

light of

recent economic

conditions and

challenges, which

continue to

evolve, management

believes that

its process

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

December 31, 2023.

December

31,

2023,

the

ACL

for

loans

and

finance

leases

was

$261.8

million,

increase

$1.3

million,

from

$260.5

million

December

31,

2022.

The

ACL

for

consumer

loans

increased

$5.6

million,

primarily

reflecting

the

effect

the

increase

the

size

the

consumer

loan

portfolios

coupled

with

delinquency

and

historical

charge-off

levels,

partially

offset

updated

macroeconomic

variables.

The

ACL

for

commercial

and

construction

loans

increased

$1.1

million,

mainly

due

the

growth

the

commercial

and

construction

loan

portfolios

and

$1.7

million

incremental

reserve

recorded

during

2023

associated

with the

inflow to

nonaccrual status

of a

$9.5 million

C&I loan

in the

Puerto Rico

region, partially

offset by

an improvement

on the

economic

outlook

certain

macroeconomic

variables

such

the

unemployment

rate.

The

ACL

for

residential

mortgage

loans

decreased

$5.4

million,

mainly

driven

updated

macroeconomic

variables,

such

the

Regional

Home

Price

Index

and

the

unemployment rate,

partially offset

by newly

originated loans

that have

a longer

life and

the $2.1

million cumulative

increase in

the

ACL

due

the

adoption

Accounting

Standards

Update

(“ASU”)

2022-02,

“Financial

Instruments

–

Credit

Losses

(Topic

326):

Troubled Debt Restructurings

and Vintage

Disclosures”, for which the Corporation

elected to discontinue the

use of a discounted

cash

flow methodology

for restructured

accruing loans.

See Note

1 –Nature

of Business

and Summary

of Significant

Accounting Policies

to the audited

consolidated financial

statements included

in Part II,

Item 8 of

this Form 10-K

for additional

information related

to the

adoption of ASU 2022-02 during 2023.

The ratio

of the

ACL for

loans and

finance leases

to total

loans held

for investment

decreased to

2.15%

as of

December 31,

2023,

compared to 2.25% as of December 31, 2022. An explanation for the change

for each portfolio follows:

●

The

ACL

total

loans

ratio

for

the

residential

mortgage

portfolio

decreased

from

2.20%

December

31,

2022

2.03%

December

31,

2023,

primarily

reflecting

favorable

economic

outlook

the

projection

certain

forecasted macroeconomic

variables, such

as the

Regional Home

Price Index

and the

unemployment rate,

partially offset

by newly originated

loans that have

a longer life and

the aforementioned $2.1

million cumulative increase

in the ACL due

to the adoption of ASU 2022-02 during 2023.

●

The ACL

to total

loans ratio

for the

construction loan

portfolio increased

from 1.74%

as of

December 31,

2022 to

2.61%

as of December 31, 2023 mainly due to newly originated loans which

have a longer life.

●

The

ACL to

total

loans

ratio

for

the

commercial

mortgage

portfolio

decreased

from

1.49%

as of

December

31,

2022

1.41% as of December 31, 2023, mainly driven by updated financial information

received during 2023.

●

The

ACL

total

loans

ratio

for

the

C&I

portfolio

decreased

from

1.14%

December

31,

2022

1.05%

December 31,

2023, mainly

due to

updated macroeconomic

variables, such

as the

unemployment rate,

and the

repayment

of a $24.3 million adversely classified C&I participated loan in the Florida

region.

●

The ACL to

total loans ratio

for the consumer

loan portfolio decreased

from 3.83% as

of December

31, 2022

to 3.64% as

December

31,

2023,

mainly

due

favorable

than

previously

estimated

outlook

certain

macroeconomic

variables, such as unemployment rates estimates and retail sales in the case of credit

cards.

The ratio

of the

total ACL

for loans

and finance

leases to

nonaccrual

loans held

for investment

was 312.81%

as of

December 31,

2023,

compared to 289.61%

as of December 31, 2022.

Substantially all of

the Corporation’s

loan portfolio is

located within the

boundaries of the

U.S. economy.

Whether the collateral

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 $261.8

million as

of December

31, 2023,

2.15% of

total loans,

compared with

$260.5 million,

or 2.25%

of total

loans, as

of December

31, 2022.

See “Results

of Operations

Provision for Credit Losses” above for additional information.

Year Ended December

31,

2023

2022

2021

(Dollars in thousands)

ACL for loans and finance leases, beginning of year

260,464

269,030

385,887

Impact of adoption of ASU 2022-02

2,116

Provision for credit losses - (benefit) expense:

Residential mortgage

(6,866)

(8,734)

(16,957)

Construction

1,408

(2,342)

(1,408)

Commercial mortgage

(2,086)

(18,994)

(55,358)

C&I

6,372

(1,770)

(8,549)

Consumer and finance leases

67,816

57,519

20,552

Total provision for credit losses

- expense (benefit)

66,644

25,679

(61,720)

Charge-offs:

Residential mortgage

(3,245)

(6,890)

(33,294)

(1)

Construction

(62)

(123)

(87)

Commercial mortgage

(1,133)

(85)

(1,494)

C&I

(6,936)

(2,067)

(1,887)

Consumer and finance leases

(76,726)

(48,165)

(43,948)

Total charge offs

(88,102)

(57,330)

(80,710)

Recoveries:

Residential mortgage

2,692

3,547

4,777

Construction

1,951

725

163

Commercial mortgage

786

1,372

281

C&I

841

2,459

6,776

Consumer and finance leases

14,451

14,982

13,576

Total recoveries

20,721

23,085

25,573

Net charge-offs

(67,381)

(34,245)

(55,137)

ACL for loans and finance leases, end of period

261,843

260,464

269,030

ACL for loans and finance leases to period-end total loans

held for investment

2.15%

2.25%

2.43%

Net charge-offs to average loans outstanding

during the period

0.58%

0.31%

0.48%

(2)

Provision for credit losses - expense (benefit) for loans and finance

leases to net charge-offs

during the period

0.99x

0.75x

-1.12x

(1)

Includes net charge-offs totaling $23.1 million associated with a bulk sale of residential nonaccrual loans and related servicing advance receivables.

(2)

Excluding net charge-offs associated with the bulk sale, total net charge-offs to related average loans for 2021 was 0.28%.

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 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

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

As of December 31, 2022

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

2,847,290

132,953

2,358,851

2,886,263

3,327,468

11,552,825

Percent of loans in each category to total loans

100

Allowance for credit losses

62,760

2,308

35,064

32,906

127,426

260,464

Allowance for credit losses to amortized cost

2.20

1.74

1.49

1.14

3.83

2.25

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

contractual

obligation

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

adjusted

provision

for

credit

loss

expense.

December

31,

2023,

the

ACL

for

off-balance

sheet

credit exposures increased by $0.4 million to $4.6 million, when compared

to December 31, 2022.

Allowance for Credit Losses for Held-to-Maturity

Debt Securities

December

31,

2023,

the

ACL

for

held-to-maturity

securities

portfolio

was

entirely

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form,

which

the

Corporation

accounts

for

securities,

but

which

were

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

December

31,

2023,

the

ACL

for

held-to-maturity

debt

securities was $2.2

million, compared to

$8.3 million as of

December 31, 2022.

The decrease was mostly

driven by the refinancing

a $46.5 million municipal bond

into a shorter-term commercial loan

structure and, to a lesser extent, a reduction

in qualitative reserves

driven by updated financial information of certain bond issuers received

during 2023.

Allowance for Credit Losses for Available

-for-Sale Debt Securities

The

ACL

for

available-for-sale

debt

securities,

which

associated

with

private

label

MBS

and

residential

pass-through

MBS

issued by the PRHFA, was $0.5

million as of each of December 31, 2023 and 2022.

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

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

accordance

with

the

contractual

terms

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

applied

the

outstanding

principal.

The

risk

exposure

this

portfolio

diversified

individual

borrowers

and

industries, among other factors. In

addition, a large portion

is secured with real estate collateral

See Note 1 – “Nature

of Business and

Summary of

Significant Accounting

Policies” to the

audited consolidated financial

statements included

in Part II,

Item 8 of

this Form

10-K, for additional information.

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”).

allowed

CECL,

the

Corporation

elected

maintain

pools

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

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

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

settlement

loans

carried

fair

value

less

estimated

costs

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

settlement

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

the

PRHFA placed

non-performing

status

the

second

quarter of 2021 based on the delinquency status of the underlying second

mortgage loans.

100

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,

other

government-guaranteed

programs

for

residential

mortgage

loans.

Furthermore,

required

instructions

regulatory

reports,

loans

past

due

days

and

still

accruing

include

loans

previously

pooled

into

GNMA

securities

for

which

the

Corporation

has

the

option

but

not

the

obligation

repurchase

loans

that

meet

GNMA’s

specified

delinquency

criteria

(e.g.,

borrowers

fail

make

any

payment

for

three

consecutive

months).

For

accounting

purposes,

these

GNMA

loans

subject

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,

mentioned

above,

and

credit

cards

that

continue

accruing

interest

until

charged-off

180

days.

The following table presents non-performing assets as of the indicated dates:

December 31, 2023

December 31, 2022

(Dollars in thousands)

Nonaccrual loans held for investment:

Residential mortgage

32,239

42,772

Construction

1,569

2,208

Commercial mortgage

12,205

22,319

C&I

15,250

7,830

Consumer and finance leases

22,444

14,806

Total nonaccrual loans held for investment

83,707

89,935

OREO

32,669

31,641

Other repossessed property

8,115

5,380

Other assets

(1)

1,415

2,202

Total non-performing assets

125,906

129,158

Past due loans 90 days and still accruing

(2) (3) (4)

59,452

80,517

Non-performing assets to total assets

0.67

0.69

Nonaccrual loans held for investment to total loans held for investment

0.69

0.78

ACL for loans and finance leases

261,843

260,464

ACL for loans and finance leases to total nonaccrual loans held

for investment

312.81

289.61

ACL for loans and finance leases to total nonaccrual loans held

for investment, excluding residential real estate loans

508.75

552.26

(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 $8.3 million and $12.0 million as of

December 31,

2023 and 2022, 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 $15.4 million and $28.2 million

of FHA government guaranteed residential mortgage loans that were

over 15 months delinquent as of December 31,

2023 and 2022, respectively.

(4)

These includes rebooked loans, which were previously pooled into

GNMA securities, amounting to $7.9 million and $10.3 million

as of December 31, 2023 and 2022, 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.

101

Total

nonaccrual

loans

were

$83.7

million

December

31,

2023.

This

represents

net

decrease

$6.2

million

from

$89.9

million as

of December

31, 2022,

consisting of

decreases of

$10.6 million

and $3.2

million in

nonaccrual residential

mortgage loans

and nonaccrual commercial and construction loans, respectively,

partially offset by an increase of $7.6 million in nonaccrual

consumer

loans.

The following table shows non-performing assets by geographic segment

as of the indicated dates:

December 31, 2023

December 31, 2022

(In thousands)

Puerto Rico:

Nonaccrual loans held for investment:

Residential mortgage

18,324

28,857

Construction

595

831

Commercial mortgage

3,106

14,341

C&I

13,414

5,859

Consumer and finance leases

21,954

14,142

Total nonaccrual loans held for investment

57,393

64,030

OREO

28,382

28,135

Other repossessed property

7,857

5,275

Other assets

1,415

2,202

Total non-performing assets

95,047

99,642

Past due loans 90 days and still accruing

53,308

76,417

Virgin Islands:

Nonaccrual loans held for investment:

Residential mortgage

6,688

6,614

Construction

974

1,377

Commercial mortgage

9,099

7,978

C&I

1,169

1,179

Consumer

419

469

Total nonaccrual loans held for investment

18,349

17,617

OREO

4,287

3,475

Other repossessed property

252

Total non-performing assets

22,888

21,168

Past due loans 90 days and still accruing

6,005

4,100

United States:

Nonaccrual loans held for investment:

Residential mortgage

7,227

7,301

C&I

667

792

Consumer

195

Total nonaccrual loans held for investment

7,965

8,288

OREO

Other repossessed property

Total non-performing assets

7,971

8,348

Past due loans 90 days and still accruing

139

102

Nonaccrual C&I

loans increased

by $7.5

million to

$15.3 million

as of

December 31,

2023, from

$7.8 million

as of December

31,

2022.

Inflows

nonaccrual

loans of

$21.1

million

for

the year

ended

December 31,

2023

included

a $9.5

million

C&I

loan

the

Puerto Rico

region and

a $7.1

million C&I

participated loan

in the

Florida region

associated with

the power

generation industry,

for

which a

$6.2 million

charge-off

was recorded

in 2023 and

the remaining

balance was

collected. These

variances were

partially offset

by $5.3 million in collections.

Nonaccrual commercial

mortgage loans

decreased by

$10.1 million

to $12.2

million as

of December

31, 2023,

from $22.3

million

as of

December 31,

2022. The

decrease of

$10.1 million

was mainly

related to

a $5.3

million nonaccrual

commercial mortgage

loan

transferred

to OREO

in the

Puerto Rico

region,

for which

a $1.0

million charge

-off

was recognized;

and $5.6

million in

collections

and loans

returned to

accrual status, including

a $2.7

million commercial

mortgage loan

in the

Puerto Rico

region; partially

offset by

inflows of $2.6 million.

Nonaccrual

construction

loans

decreased

$0.6

million

$1.6

million

December

31,

2023,

from

$2.2

million

December 31, 2022.

The

following

tables

present

the

activity

commercial

and

construction

nonaccrual

loans

held

for

investment

for

the

indicated

periods:

Construction

Commercial

Mortgage

C&I

Total

(In thousands)

Year Ended

December 31, 2023

Beginning balance

2,208

22,319

7,830

32,357

Plus:

Additions to nonaccrual

133

2,633

21,088

23,854

Less:

Loans returned to accrual status

(3,466)

(765)

(4,231)

Nonaccrual loans transferred to OREO

(367)

(5,544)

(742)

(6,653)

Nonaccrual loans charge-offs

(14)

(1,120)

(6,910)

(8,044)

Loan collections

(391)

(2,097)

(5,251)

(7,739)

Reclassification

Nonaccrual loans sold

(526)

Ending balance

1,569

12,205

15,250

29,024

Construction

Commercial

Mortgage

C&I

Total

(In thousands)

Year Ended

December 31, 2022

Beginning balance

2,664

25,337

17,135

45,136

Plus:

Additions to nonaccrual

2,934

2,749

5,703

Less:

Loans returned to accrual status

(48)

(1,585)

(6,864)

(8,497)

Nonaccrual loans transferred to OREO

(130)

(549)

(273)

(952)

Nonaccrual loans charge-offs

(114)

(83)

(385)

(582)

Loan collections

(184)

(3,333)

(4,934)

(8,451)

Reclassification

(402)

402

Ending balance

2,208

22,319

7,830

32,357

103

Nonaccrual

residential

mortgage loans

decreased by

$10.6 million

to $32.2

million as

of December

31, 2023,

compared to

$42.8

million as of

December 31, 2022.

The decrease was

primarily related

to $12.0 million

of loans restored

to accrual status;

$5.5 million

of loans

transferred to

OREO; and

$7.0 million

in collections,

including a

$1.4 million

collection in

the Puerto

Rico region;

partially

offset by inflows of $14.9 million.

The following table presents the activity of residential nonaccrual loans held for investment

for the indicated periods:

Year

Ended December 31,

2023

2022

(In thousands)

Beginning balance

42,772

55,127

Plus:

Additions to nonaccrual

14,946

20,320

Less:

Loans returned to accrual status

(12,028)

(15,362)

Nonaccrual loans transferred to OREO

(5,523)

(3,895)

Nonaccrual loans charge-offs

(902)

(1,594)

Loan collections

(7,020)

(11,824)

Reclassification

(6)

Ending balance

32,239

42,772

The amount of

nonaccrual consumer loans,

including finance leases, increased

by $7.6 million to

$22.4 million as of

December 31,

2023,

compared

$14.8

million

December

31,

2022.

The

increase

was

mainly

reflected

the

auto

loan

and

finance

lease

portfolios.

As of December

31, 2023, approximately

$12.8 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

year

ended

December

31,

2023,

interest

income

approximately

$0.5

million

nonaccrual

loans

with

carrying value

of $24.4

million as

of December

31, 2023, 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 $150.8

million as

of December

31, 2023,

an increase

of $45.9

million, compared

to $104.9 million

as of December

31, 2022.

The variances

by major portfolio categories are as follows:

●

Consumer loans in early delinquency increased by $41.1 million to

$112.0 million, mainly in the auto loan portfolio.

●

Residential mortgage loans in early delinquency increased by $8.3

million to $36.5 million.

●

Commercial and construction loans

in early delinquency

decreased by $3.5 million

to $2.3 million, mainly

in the commercial

mortgage loan portfolio.

In addition,

the Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program

are

provided,

as well

as other

restructurings

of individual

C&I, commercial

mortgage, construction,

and residential

mortgage loans.

See

Note

–

“Nature

Business

and

Summary

Significant

Accounting

Policies”

the

audited

consolidated

financial

statements

included in Part II, Item 8 of this Form 10-K for additional information

related to the accounting policies of loan modifications granted

borrowers

experiencing

financial

difficulty.

addition,

see

Note

–

“Loans

Held

for

Investment”

the

audited

consolidated

financial

statements

included

Part

II,

Item

this

Form

10-K

for

additional

information

and

statistics

about

the

Corporation’s

modified loans.

104

The OREO portfolio, which is part of non-performing assets,

amounted to $32.7 million as of December 31, 2023 and $31.6 million

as of

December 31,

2022. The

following tables

show the

composition of

the OREO

portfolio as

of December

31, 2023

and 2022,

well as the activity of the OREO portfolio by geographic area during the

year ended December 31, 2023:

OREO Composition by Region

As of December 31, 2023

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

18,809

1,452

20,261

Construction

1,576

1,601

Commercial

7,997

2,810

10,807

28,382

4,287

32,669

As of December 31, 2022

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

23,388

606

24,025

Construction

1,705

1,764

Commercial

3,042

2,810

5,852

28,135

3,475

31,641

OREO Activity by Region

Year

Ended December 31, 2023

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Beginning Balance

28,135

3,475

31,641

Additions

20,301

1,970

378

22,649

Sales

(18,445)

(1,000)

(409)

(19,854)

Write-downs and other adjustments

(1,609)

(158)

(1,767)

Ending Balance

28,382

4,287

32,669

105

Net Charge-offs and Total

Credit Losses

Net charge-offs totaled $67.4 million

for the year ended December 31, 2023, or

0.58% of average loans, compared to $34.2 million,

or 0.31% of average loans, for the year ended December 31, 2022.

Consumer loans

and finance

leases net charge

-offs for

the year

ended December

31, 2023

were $62.3

million, or

1.78% of

average loans, compared to net charge-offs

of $33.2 million, or 1.07% of related average loans, for the year

ended December 31, 2022.

The increase was primarily reflected in the auto, personal,

and credit card loan portfolios.

C&I loans net charge-offs

for the year ended December 31, 2023

were $6.1 million, or 0.21% of related

average loans, compared to

net recoveries

of $0.4

million, or

0.01% of

related average

loans, for

the year

ended December

31, 2022.

The net

charge-offs

for the

year ended December

31, 2023 included

a $6.0 million net

charge-off recorded

on a C&I participated

loan in the Florida

region in the

power generation industry.

Residential mortgage

loans net

charge-offs

for the

year ended

December 31,

2023 were

$0.6 million,

or 0.02%

of related

average

loans, compared to net charge-offs

of $3.3 million, or 0.12% of related average loans,

for the year ended December 31, 2022. The $3.3

million in charge-offs recorded during

2023 included $1.4 million in charge-offs

resulting from foreclosures, compared

to $6.9 million

in charge-offs recorded

during 2022 that included $2.6

million in charge-offs

resulting from foreclosures. Meanwhile,

the $2.7 million

in recoveries

recorded during

2023 included

a $0.4

million recovery

associated with

the payoff

of a

residential mortgage

loan in

the

Puerto Rico region, compared to $3.6 million in recoveries recorded

during 2022.

Commercial mortgage

loans net charge

-offs for

the year ended

December 31,

2023 were $0.3

million, or

0.01% of related

average

loans, compared to

net recoveries of $1.3

million, or 0.06% of

related average loans,

for the year ended

December 31, 2022.

The $1.1

million in

charge-offs

recorded during

2023 included

a $1.0

million charge

-off recorded

on a

nonaccrual commercial

mortgage loan

transferred to

OREO during

2023. Meanwhile,

the $0.8

million in

recoveries recorded

during 2023

included a

$0.3 million

recovery

associated with the sale of

a commercial mortgage loan in

the Puerto Rico region. For

the year ended December 31,

2022, commercial

mortgage loans net recoveries included recoveries totaling $1.2 million

associated with two commercial mortgage relationships.

Construction

loans

net

recoveries

for

the

year

ended

December

31,

2023

were

$1.9

million,

1.09%

average

loans,

compared to

net recoveries

of $0.6

million, or

0.49% of

related average

loans, for

the year

ended December

31, 2022.

For the

years

ended December 31,

2023 and 2022,

a recovery

of $1.4 million

and $0.5 million,

respectively,

was recorded on

a construction loan

the Puerto Rico region.

106

The following table presents net charge-offs (recoveries)

to average loans held-in-portfolio for the indicated periods:

Year Ended December

31,

2023

2022

2021

Residential mortgage

(1)

0.02

0.12

0.87

Construction

(1.09)

(0.49)

(0.04)

Commercial mortgage

0.01

(0.06)

0.06

C&I

0.21

(0.01)

(0.16)

Consumer and finance leases

1.78

1.07

1.11

Total loans

(1)

0.58

0.31

0.48

(1)

For the year ended December 31, 2021, includes net charge

-offs totaling $23.1 million associated with the

bulk sale of residential nonaccrual loans and related servicing advance

receivables. Excluding net charge-offs associated with the

bulk sale, residential mortgage and total net charge-offs

to related average loans for 2021 was 0.17% and 0.28%,

respectively.

The following table presents net charge-offs (recoveries)

to average loans held in various portfolios by geographic segment for the

indicated periods:

Year Ended December

31,

2023

2022

2021

PUERTO RICO:

Residential mortgage

(1)

0.03

0.14

1.09

Construction

(2.66)

(1.68)

(0.05)

Commercial mortgage

0.03

(0.04)

0.08

C&I

(0.01)

(0.11)

(0.30)

Consumer and finance leases

1.78

1.07

1.10

Total loans

(1)

0.65

0.37

0.59

VIRGIN ISLANDS:

Residential mortgage

0.18

0.06

Construction

0.03

Commercial mortgage

(0.02)

(0.22)

(0.23)

Consumer and finance leases

0.26

1.23

1.16

Total loans

0.04

0.23

0.13

FLORIDA:

Residential mortgage

(0.01)

(0.03)

(0.01)

Construction

(0.05)

(0.06)

(0.04)

Commercial mortgage

(0.02)

(0.10)

(0.01)

C&I

0.67

0.17

0.10

Consumer and finance leases

(0.50)

0.30

2.15

Total loans

0.30

0.05

0.07

(1)

For the year ended December 31, 2021, includes net charge

-offs totaling $23.1 million associated with the

bulk sale of residential nonaccrual loans and related servicing advance

receivables. Excluding net charge-offs associated with the

bulk sale, residential mortgage and total net charge-offs

to related average loans in the Puerto Rico region for 2021 was

0.21%

and 0.34%, respectively.

107

The following table presents information about the OREO inventory

and credit losses for the indicated periods:

Year Ended

December 31,

2023

2022

2021

(Dollars in thousands)

OREO

OREO balances, carrying value:

Residential

20,261

24,025

29,533

Construction

1,601

1,764

3,984

Commercial

10,807

5,852

7,331

Total

32,669

31,641

40,848

OREO activity (number of properties):

Beginning property inventory

344

418

513

Properties acquired

171

156

167

Properties disposed

(238)

(230)

(262)

Ending property inventory

277

344

418

Average holding period (in days)

Residential

483

606

700

Construction

2,412

2,185

2,115

Commercial

1,491

2,570

2,018

Total average holding period (in days)

911

1,057

1,075

OREO operations (gain) loss:

Market adjustments and (gains) losses on sale:

Residential

(8,962)

(7,742)

(4,166)

Construction

(61)

418

(820)

Commercial

(305)

(420)

1,182

Total net gain

(9,328)

(7,744)

(3,804)

Other OREO operations expenses

2,190

1,918

1,644

Net Gain on OREO operations

(7,138)

(5,826)

(2,160)

108

Operational Risk

The

Corporation

faces

ongoing

and

emerging

risk

and

regulatory

pressure

the

activities

that

surround

the

delivery

banking

and

financial

products.

Coupled

with

external

influences,

such

market

conditions,

security

risks,

and

legal

risks,

the

potential for

operational and

reputational loss

has increased.

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

appropriate

levels

throughout

the

organization.

The

purpose

these

mechanisms

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

corporate-wide

risks,

such

information

security,

business

recovery,

and

legal

and

compliance,

the

Corporation

has

specialized

groups,

such

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

counterparty’s

performance

obligations

will

unenforceable.

The

Corporation

subject

extensive

regulation

the

different

jurisdictions

which

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

the

Chief

Risk

Officer

and

responsible

for

the

oversight

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 $12.2 billion

as of December

31, 2023, the

Corporation had

credit risk of

approximately 80%

the Puerto Rico region, 17% in the United States region, and 3% in the Virgin

Islands region.

109

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. 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

fiscal

matters

primarily

restructuring

large

portion

its

outstanding

public

debt

and

identifying funding sources for its underfunded pension system.

Economic Indicators

June

15,

2023,

the

Puerto

Rico

Planning

Board

(“PRPB”)

presented

the

updated

Economic

Report

the

Governor,

which

provides

analysis

Puerto

Rico’s

economy

during

fiscal

year

2022

and

short-term

forecast

for

fiscal

years

2023

and

2024.

According

the

PRPB,

Puerto

Rico’s

real

gross

national

product

(“GNP”)

expanded

3.7%

fiscal

year

2022,

which

was

the

highest annual real GNP

growth registered in Puerto

Rico since fiscal year 1999.

The growth was primarily driven

by a sharp increase

in personal

consumption

expenditures reflecting

an increase

of approximately

8.5% when

compared

to fiscal

year

2021,

increase

exports of 4.8%, and growth in fixed capital investments of 12.6%,

partially offset by an increase in imports of 10.3%.

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

direct

measure

Puerto

Rico’s

real

GNP,

the EDB-EAI is correlated

to Puerto Rico’s

real GNP.

For November 2023,

estimates showed that the

EDB-EAI stood at

129.5,

up 5.9%

on a

year-over-year

basis. Over

the 12-month

period ended

November 30,

2023, the

EDB-EAI averaged

127.2, the

highest

level since October 2014 and approximately 3.0% above the comparable figure

a year earlier.

Labor

market

trends

remain

positive.

Data

published

the

Bureau

Labor

Statistics

showed

that

December

2023

payroll

employment in

Puerto Rico increased

by 2.4% when

compared to December

2022, supported by

a year-over-year

increase of 8.3%

Leisure

and

Hospitality

payroll employment

and

an 11.6%

year-over-year

increase

in construction

-related

payroll employment.

The

unemployment rate continued to trend downward and stood at a record

-low of 5.7%.

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.

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

legacy

strong

financial

management

through

the

implementation

comprehensive

financial

management

agenda,

(ii)

instilling

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

improve

availability,

reliability

and

affordability

energy,

education

reform

expand

opportunity

and

prepare

the

workforce

compete

for

jobs

the

future,

and

infrastructure

reform

aimed

improving

the

efficiency

the

economy

and

facilitating

investment.

The

2023

Fiscal

Plan

projects

that

these

reforms,

implemented

successfully,

will contribute

0.75% in

GNP growth

by fiscal

year

2026.

Additionally,

the 2023

Fiscal Plan

provides

roadmap

for

tax

reform

directed

towards

establishing

tax

regime

that

competitive

for

investors

and

equitable

for

individuals.

110

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

historically

low

levels.

However,

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

steady

decline.

Notwithstanding,

the

Transformation

Plan

depicts

that,

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

disaster

relief

funding.

Also,

the

2023

Fiscal

Plan

projects

the

$9.3

billion

remaining

COVID-19

relief

funds

deployed

fiscal

years

2023

through

2025,

compared

$4.5

billion

projected

the

fiscal

plan.

Additionally,

the

2023

Fiscal

Plan

continues

account

for

$2.3

billion

federal

funds

Puerto

Rico

from

the

Bipartisan

Infrastructure

Law

directed

towards improving Puerto Rico’s

infrastructure over fiscal years 2022 through 2026.

Debt Restructuring

Over

80%

Puerto

Rico’s

outstanding

debt

has

been

restructured

date.

March

15,

2022,

the

Plan

Adjustment

the

central

government’s

debt

became

effective

through

the

exchange

of more

than

$33

billion

existing

bonds

and

other

claims

into

approximately

billion

new

bonds,

saving

Puerto

Rico

than

$50

billion

debt

payments

creditors.

Also,

the

restructurings

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

yield

savings

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”).

June

23,

2023,

the

Fiscal

Oversight

and

Management

Board

for

Puerto

Rico

certified

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

years.

such,

PREPA

concluded

that

its

ability

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 August 25,

2023, the PROMESA

oversight board

announced that it

filed the third

amended Plan of

Adjustment to reduce

than $10 billion

of total asserted

claims by various

creditors against PREPA

by approximately 80%

to $2.5 billion,

excluding pension

liabilities.

According

the

PROMESA

oversight

board,

bondholders

who

support

the

plan

would

recover

12.5%

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.

addition

conforming

Judge

Taylor

Swain’s

ruling

made

June,

the

amended

plan

also

conforms

the

previously

disclosed

debt

sustainability

analysis

the

revised

PREPA

Fiscal

Plan

certified

June

2023

that

based

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. The

disclosure statement hearing

for

the amended

plan

has

been

scheduled

for

November

14, 2023,

and

the

confirmation

hearing

is expected

to take

place

March

2024, according to a court order dated September 11,

2023.

111

Other Developments

Notable

progress

continues

made

part

the

ongoing

efforts

prioritizing

the

restoration,

improvement,

and

modernization of

Puerto Rico’s

infrastructure,

particularly in

the aftermath

of Hurricane

Maria in

2017. During

the 11

-month period

ended November

30, 2023,

over $2.95

billion in

disaster relief

funds have

been disbursed

through FEMA

Public Assistance

program

and

the

Department

Housing

and

Urban

Development’s

Community

Development

Block

Grant

program,

48%

increase

when

compared to the

same period in 2022.

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

address

damage

caused

Hurricane

Maria

have

resources

reinforce

their

infrastructure,

among

other

hazard

mitigation

measures,

that

will

prepare

these

facilities

for

future

weather

events.

January

22,

2024,

over

2,250

projects

had

already been

completed under

FEMA’s

Public Assistance

programs while

over 21,100

projects were

active across

different stages

execution

for

a total

cost of

$10.3 billion,

equivalent

to approximately

31% of

the agency’s

$33 billion

obligation,

according

to the

Central Office for Recovery,

Reconstruction and Resiliency (“COR3”).

On June

21,

2023,

Fitch Ratings

issued a

credit rating

research

note

highlighting

the government’s

commitment

to improving

its

continuing

disclosure

practices and

the release

the 2021

audited

financial

statements.

The

government

has

made

great strides

recent

years with

regards to

its financial

transparency

and is

on target

to release

its audited

financial

statements on

time and

in line

with regulatory expectations.

On October 17, 2023, the Government

of Puerto Rico announced the execution

of a $2.85 billion concession agreement

with Puerto

Rico

Tollroads

LLC,

subsidiary

Abertis

Infraestructuras

SA,

operate,

maintain,

and

improve

the

four

Puerto

Rico toll

roads

currently managed by HTA

over the next 40 years. Pursuant to the agreement,

the $2.85 billion concession fee will enable HTA

to pay

off

approximately

$1.6 billion

its outstanding

debt.

In addition,

the concession

fee

will provide

an estimated

$1.1 billion

new

funding

to be

dedicated for

road-maintenance

purposes and

other

long-term

investments of

transportation

projects. This

transaction,

which

was

part

financed

banks,

including

FirstBank,

resulted

the

origination

the

aforementioned

$150.0

million

participation on a C&I loan funded during the fourth quarter of 2023.

112

Exposure to Puerto Rico Government

As of December

31, 2023, the

Corporation had $297.9

million of direct

exposure to the

Puerto Rico government,

its municipalities

and

public

corporations,

compared

$338.9

million

December

31,

2022.

December

31,

2023,

approximately

$189.0

million of the

exposure consisted of loans

and obligations of municipalities

in Puerto Rico that

are supported by assigned

property tax

revenues

and

for

which,

most

cases,

the

good

faith,

credit

and

unlimited

taxing

power

the

applicable

municipality

have

been

pledged to their

repayment, and $59.4

million consisted of

loans and obligations

which are supported

by one or more

specific sources

of municipal

revenues. Approximately

73% 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

other

government

entities.

addition

municipalities,

the

total

direct

exposure

also

included

$8.9

million

loans

to an

affiliate

of PREPA,

$37.4

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

$3.2 million

part of its available-for-sale debt securities portfolio (fair

value of $1.4 million as of December 31, 2023).

The

following

table

details

the

Corporation’s

total

direct

exposure

Puerto

Rico

government

obligations

according

their

maturities:

As of December 31, 2023

Investment

Portfolio

(Amortized

cost)

Loans

Total

Exposure

(In thousands)

Puerto Rico Housing Finance Authority:

After 10 years

3,156

Total

Puerto Rico Housing Finance Authority

3,156

Agencies and public corporation of the Puerto Rico government:

After 1 to 5 years

12,837

After 5 to 10 years

24,563

Total agencies and public

corporation of the Puerto Rico government

37,400

Affiliate of the Puerto Rico Electric Power Authority:

After 1 to 5 years

8,908

Total Puerto Rico government

affiliate

8,908

Total

Puerto Rico public corporations and government affiliate

46,308

Municipalities:

Due within one year

3,165

7,176

10,341

After 1 to 5 years

51,230

52,330

103,560

After 5 to 10 years

36,050

81,859

117,909

After 10 years

16,595

Total

Municipalities

107,040

141,365

248,405

Total

Direct Government Exposure

110,196

187,673

297,869

113

addition,

December

31,

2023,

the

Corporation

had

$77.7

million

exposure

residential

mortgage

loans

that

are

guaranteed by

the PRHFA,

a governmental instrumentality

that has been

designated as a

covered entity under

PROMESA (December

31,

2022

–

$84.7

million).

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

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

the

principal

for

all

loans

under

the

mortgage

loan

insurance

program.

According

the

most

recently

released

audited

financial

statements

the

PRHFA,

June

30,

2022,

the

PRHFA’s

mortgage

loans

insurance

program

covered

loans

aggregate

amount

approximately

$418

million.

The

regulations

adopted

the

PRHFA

require

the

establishment

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 December

31, 2023, the

Corporation had

$2.7 billion of

public sector deposits

in Puerto Rico,

compared to $2.3

billion as of

December

31,

2022.

Approximately

20%

the

public

sector

deposits

December

31,

2023

were

from

municipalities

and

municipal agencies in Puerto Rico and 80% were from public

corporations, the Puerto Rico central government and

agencies, and U.S.

federal government agencies in Puerto Rico.

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

the

area.

However,

May

22,

2023,

the

United

States

Bureau

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

real

GDP reflected

increases

exports

and

personal

consumption

expenditures.

These

increases

were

partly

offset by decreases in

private inventory investment, private

fixed investment, and government

spending. Imports, a subtraction

item in

the calculation of GDP,

also decreased.

Over the past

three years, the

USVI has been

recovering from the

adverse impact caused

by COVID-19 and

has continued to

make

progress on

its rebuilding

efforts related

to Hurricanes

Irma and

Maria, which

occurred in

2017. According

to data

published by

the

government,

over

$5.0

billion

disaster

recovery

funds

were

disbursed

November

2023

and

$6.2

billion

were

remaining

obligated funds

waiting to

be disbursed.

On the

fiscal front,

revenues have

trended positively

and the

USVI government

successfully

completed the restructuring

of the government

employee retirement system.

Moreover,

labor market trends

remain stable with

payroll

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

December 2022.

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

limited

availability

the

authority’s

operating

and

financial

information

from

public

sources

from

WAPA’s

management.

Finally, PROMESA

does not apply to

the USVI and, as such,

there is currently no federal

legislation permitting the restructuring

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

the

government

the

USVI

may

enact

legislation

allowing

for

the

restructuring

the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of December 31, 2023,

the Corporation had $90.5 million

in loans to USVI public corporations,

compared to $38.0 million as of

December 31,

2022. The increase

in loans to

USVI public corporations

was driven by

the aforementioned $57.2

million line of

credit

utilization.

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

and interest payments.

114

CEO and CFO Certifications

First BanCorp.’s Chief Executive

Officer and Chief Financial Officer have

filed with the SEC certifications required by Section 302

and Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, 32.1

and 32.2 to this Form 10-K.

In addition, in 2023, First BanCorp’s

Chief Executive Officer provided to the NYSE his annual certification,

as required for all

NYSE listed companies, that he was not aware of any violation by the Corporation

of the NYSE corporate governance listing

standards.

Item 7A. Quantitative and Qualitative Disclosures about Market

Risk

The information required

herein is incorporated by

reference to the information

included under the sub-caption

“Interest Rate Risk

Management”

in Part

II, Item

7 “Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations,”

of this

Form 10-K.

115

Item 8. Financial Statements and Supplementary Data

FIRST BANCORP.

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

(PCAOB No.

173

)….…………………………..

116

Management’s Report on Internal Control over Financial Reporting

…………………………………………

118

Consolidated Statements of Financial Condition

……………………………………………………………...

119

Consolidated Statements of Income

……...…………………………………………………………………...

120

Consolidated Statements of Comprehensive Income

(Loss)

……...………………………………………..…

121

Consolidated Statements of Cash Flows

………………………………………………………………………

122

Consolidated Statements of Changes in Stockholders’ Equity

………………………………………………..

123

Notes to Consolidated Financial Statements

…………………………………………………………………..

124

116

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of First BanCorp.

San Juan, Puerto Rico

Opinions on the Financial Statements and Internal Control

over Financial Reporting

We have

audited the accompanying consolidated

statements of financial condition of

First BanCorp. (the "Company") as of

December

31,

2023,

and

2022,

the

consolidated

statements

income,

comprehensive

income

(loss),

cash

flows,

and

changes

stockholders’

equity

for

each

the

years

the

three-year

period

ended

December

31,

2023,

and

the

notes

(collectively

referred

the

"financial

statements").

also

have

audited

the

Company’s

internal

control

over

financial

reporting

December

31,

2023,

based

criteria

established

Internal

Control

–

Integrated

Framework:

(2013)

issued

the

Committee

Sponsoring Organizations of the Treadway

Commission (COSO).

In our opinion,

the financial statements

referred to above

present fairly,

in all material respects,

the financial position

of the Company

as of

December 31,

2023, and

2022, and

the results

of its

operations and

its cash

flows for

each of

the years

in the

three-year period

ended December

31, 2023, in

conformity with

accounting principles

generally accepted

in the United

States of America.

Also in our

opinion, the Company maintained,

in all material respects, effective

internal control over financial

reporting as of December

31, 2023,

based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The

Company’s

management

responsible

for

these

financial

statements,

for

maintaining

effective

internal

control

over

financial

reporting,

and

for

its

assessment

the

effectiveness

internal

control

over

financial

reporting,

included

the

accompanying

Management’s

Report

Internal

Control

over

Financial

Reporting.

Our

responsibility

express

opinion

the

Company’s

financial statements

and an

opinion on

the Company’s

internal control

over financial

reporting based

on our

audits.

are a

public

accounting firm

registered with

the Public

Company Accounting

Oversight Board

(United States)

("PCAOB") and

are required

to be

independent with

respect to

the Company

in accordance

with the

U.S. federal

securities laws and

the applicable

rules and regulations

of the Securities and Exchange Commission and the PCAOB.

We conducted

our audits in accordance with the

standards of the PCAOB. Those standards require

that we plan and perform the audits

to obtain reasonable

assurance about whether

the financial statements are

free of material misstatement,

whether due to error

or fraud,

and whether effective internal control over financial reporting

was maintained in all material respects.

Our

audits

the

financial

statements

included

performing

procedures

assess

the

risks

material

misstatement

the

financial

statements, whether due to error or fraud,

and performing procedures that respond to

those risks. Such procedures included examining,

test basis,

evidence

regarding

the

amounts

and

disclosures

the

financial

statements.

Our

audits

also

included

evaluating

the

accounting

principles

used

and

significant

estimates

made

management,

well

evaluating

the

overall

presentation

the

financial statements. Our audit

of internal control over

financial reporting included obtaining

an understanding of internal

control over

financial reporting, assessing the risk that a material weakness

exists, and testing and evaluating the design

and operating effectiveness

of internal control

based on the

assessed risk.

Our audits also

included performing

such other procedures

as we considered

necessary

in the circumstances.

We believe that our audits

provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s

internal control over financial reporting is a

process designed to provide reasonable assurance

regarding the reliability of

financial reporting and

the preparation of

financial statements for

external purposes in

accordance with generally

accepted accounting

principles.

company’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that

(1)

pertain

the

maintenance

records

that,

reasonable

detail,

accurately

and

fairly

reflect

the

transactions

and

dispositions

the

assets

the

company; (2) provide

reasonable assurance that

transactions are recorded

as necessary to permit

preparation of financial

statements in

accordance with

generally accepted

accounting principles,

and that

receipts and

expenditures of

the company

are being

made only

accordance

with

authorizations

management

and

directors

the

company;

and

(3)

provide

reasonable

assurance

regarding

prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s

assets that could have a material effect

on the financial statements.

Because of its inherent limitations, internal control over

financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation

of effectiveness to

future periods are

subject to the

risk that controls

may become inadequate

because of changes

conditions, or that the degree of compliance with the policies or procedures

may deteriorate.

117

Critical Audit Matter

The

critical

audit

matter

communicated

below

is a

matter

arising

from

the

current

period

audit

the

financial

statements

that

was

communicated or required

to be communicated

to the audit

committee and that:

(1) relates to accounts

or disclosures that

are material

to the financial

statements and (2)

involved our especially

challenging, subjective,

or complex judgments.

The communication

of the

critical

audit

matter

does

not

alter

any

way

our

opinion

the

financial

statements,

taken

whole,

and

are

not,

communicating

the

critical

audit

matter

below,

providing

separate

opinion

the

critical

audit

matter

the

accounts

disclosures to which it relates.

Allowance for Credit Losses – Economic Forecasts and Macroeconomic Variables

As described

in Notes

1 and

5 to

the financial

statements, the

allowance for

credit losses

(“ACL”) for

loans and

finance leases

is an

accounting

estimate

expected

credit

losses

over

the

contractual

life

financial

assets

carried

amortized

cost

and

off-balance-

sheet credit exposures.

The calculation

of the

ACL for

loans and

finance leases,

is primarily

measured based

on a

probability of

default /

loss given

default

modeled approach. The

estimate of the

probability of default

and loss given

default assumptions uses

one or more

economic forecasts

relevant

current

and

forward-looking

macroeconomic

variables

determined

portfolio

segment,

such

as:

unemployment

rate;

housing

and

real

estate

price

indices;

interest

rates;

market

risk

factors;

and

gross

domestic

product,

and

considers

conditions

throughout

Puerto

Rico,

the

Virgin

Islands,

and

the

State

Florida.

significant

amount

judgment

required

assess

the

reasonableness

the

selection

economic

forecasts

and

macroeconomic

variables.

Changes

these

assumptions

could

have

material effect on the Company’s

financial results.

The economic

forecasts and

current and

forward-looking macroeconomic

variables used

contribute significantly

to the

determination

of the ACL for loans

and finance leases. We

identified the assessment of

economic forecasts and relevant

macroeconomic variables as

a critical

audit matter

as the

impact of

these judgments

represents a

significant portion

of the

ACL for

loans and

finance leases

and

because

management’s

estimate

required

especially

subjective

auditor

judgment

and

significant

audit

effort,

including

the

need

for

specialized skill.

The primary procedures we performed to address these critical audit matters included:

●

Testing

the effectiveness

of controls

over the

evaluation of

the selection

of economic

forecasts and

the current

and forward-

looking macroeconomic variables, including controls addressing:

o

Management’s review and

approval of the economic forecasts and macroeconomic variables.

o

Management’s

review

the

reasonableness

the

results

the

selection

economic

forecasts

and

macroeconomic variables used in the calculation.

●

Substantively

testing

management’s

process,

including

evaluating

their

judgments

and

assumptions,

for

economic

forecast

selection and macroeconomic variables, which included:

o

Evaluation of reasonableness of economic forecasts selection.

o

Evaluation

the

completeness

and

accuracy

data

inputs

used

basis

for

the

adjustments

relating

macroeconomic variables.

o

Evaluation,

with

the

assistance

professionals

with

specialized

skill

and

knowledge,

the

reasonableness

management’s

judgments related

to the

economic forecast

and macroeconomic

variables used

in the

determination

the

ACL

for

loans.

Among

other

procedures,

our

evaluation

considered,

evidence

from

internal

and

external

sources, loan portfolio performance trends and whether such assumptions were

applied consistently period to period.

o

Analytical evaluation of the variables period to period for directional consistency

and testing for reasonableness.

We have served

as the Company’s auditor since 2018.

/s/

Crowe LLP

Fort Lauderdale, Florida

February 28, 2024

Stamp No. E511125

of the

Puerto Rico Society of Certified

Public Accountants was affixed to

the record copy this report.

118

Management’s Report on Internal Control

over Financial Reporting

To the Stockholders

and Board of Directors of First BanCorp.:

First BanCorp.’s

(the “Corporation”)

internal control

over financial

reporting is

a process

designed and

effected

by those

charged

with

governance,

management,

and

other

personnel,

provide

reasonable

assurance

regarding

the

reliability

financial

reporting

and the preparation of reliable

financial statements in accordance

with accounting principles generally

accepted in the United States of

America

(“GAAP”).

The

Corporation’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that:

(1) pertain to the

maintenance of records

that, in reasonable detail,

accurately and fairly reflect

the transactions and dispositions

of the

assets

the

Corporation;

(2) provide

reasonable

assurance

that

transactions

are

recorded

necessary

permit

the

preparation

financial

statements

accordance

with

GAAP,

and

that

receipts

and

expenditures

the

Corporation

are

being

made

only

accordance

with

authorizations

management

and

directors

the

Corporation;

and

(3) provide

reasonable

assurance

regarding

prevention,

or timely

detection and

correction

of unauthorized

acquisition,

use, or

disposition of

the Corporation’s

assets that

could

have a material effect on the financial statements.

Because of

its inherent

limitations,

internal control

over financial

reporting may

not prevent,

or detect

and correct

misstatements.

Also,

projections

any

evaluation

effectiveness

future

periods

are

subject

the

risk

that

controls

may

become

inadequate

because of changes in conditions, or that the degree of compliance with the policies

and procedures may deteriorate.

Management

responsible

for

establishing

and

maintaining

effective

internal

control

over

financial

reporting.

Management

assessed

the

effectiveness

the

Corporation’s

internal

control

over

financial

reporting

December 31,

2023,

based

the

framework

set

forth

the

Committee

Sponsoring

Organizations

the

Treadway

Commission

(COSO)

Internal

Control-

Integrated

Framework

(2013).

Based

that

assessment,

management

concluded

that,

December

31,

2023,

the

Corporation’s

internal control over financial reporting is effective based

on the criteria established in Internal Control-Integrated Framework (2013).

The

Corporation’s

independent

registered

public

accounting

firm,

Crowe LLP,

has

audited

the effectiveness

of the

Corporation’s

internal control over financial reporting as of December 31, 2023, as stated in

their report dated February 28, 2024.

First BanCorp.

/s/

Aurelio Alemán

President and Chief Executive Officer

Date: February 28, 2024

/s/

Orlando Berges

Executive Vice President

and Chief Financial Officer

Date: February 28, 2024

119

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 2023

December 31, 2022

(In thousands, except for share information)

ASSETS

Cash and due from banks

661,925

478,480

Money market investments:

Time deposits with other financial institutions

300

Other short-term investments

939

1,725

Total money market investments

1,239

2,025

Available-for-sale debt securities, at fair value:

Securities pledged with creditors’ rights

to repledge

81,103

Other available-for-sale debt securities

5,229,984

5,518,417

Total available-for-sale debt securities, at fair value (amortized cost

of $

5,863,294

as of December 31, 2023, and

6,398,197

as of December 31, 2022; allowance

for credit losses (''ACL'') of $

511

as of December 31, 2023 and $

458

as of

December 31, 2022)

5,229,984

5,599,520

Held-to-maturity debt securities, at amortized

cost, net of ACL of $

2,197

as of December 31, 2023 and $

8,286

as of December 31, 2022 (fair value of

346,132

as of December 31, 2023 and $

427,115

as of December 31, 2022)

351,981

429,251

Equity securities

49,675

55,289

Total investment securities

5,631,640

6,084,060

Loans, net of ACL of $

261,843

as of December 31, 2023 and $

260,464

as of December 31, 2022

11,923,640

11,292,361

Mortgage loans held for sale, at lower of

cost or market

7,368

12,306

Total loans, net

11,931,008

11,304,667

Accrued interest receivable on loans and

investments

77,716

69,730

Premises and equipment, net

142,016

142,935

Other real estate owned (“OREO”)

32,669

31,641

Deferred tax asset, net

150,127

155,584

Goodwill

38,611

Other intangible assets

13,383

21,118

Other assets

229,215

305,633

Total assets

18,909,549

18,634,484

LIABILITIES

Non-interest-bearing deposits

5,404,121

6,112,884

Interest-bearing deposits

11,151,864

10,030,583

Total deposits

16,555,985

16,143,467

Short-term securities sold under agreements

to repurchase

75,133

Advances from the Federal Home Loan

Bank ("FHLB"):

Short-term

475,000

Long-term

500,000

200,000

Total advances from the FHLB

500,000

675,000

Other long-term borrowings

161,700

183,762

Accounts payable and other liabilities

194,255

231,582

Total liabilities

17,411,940

17,308,944

Commitments and contingencies (See

Note 29)

(nil)

STOCKHOLDERS’ EQUITY

Common stock, $

0.10

par value,

2,000,000,000

shares authorized;

223,663,116

shares issued;

169,302,812

shares outstanding as of December 31, 2023

and

182,709,059

as of December 31, 2022

22,366

Additional paid-in capital

965,707

970,722

Retained earnings, includes legal surplus

reserve of $

199,576

as of December 31, 2023 and $

168,484

as of December 31, 2022

1,846,112

1,644,209

Treasury stock (at cost),

54,360,304

shares as of December 31, 2023 and

40,954,057

shares as of December 31, 2022

(697,406)

(506,979)

Accumulated other comprehensive loss,

net of tax of $

8,581

as of December 31, 2023 and $

8,468

as of December 31, 2022

(639,170)

(804,778)

Total stockholders’ equity

1,497,609

1,325,540

Total liabilities and stockholders’ equity

18,909,549

18,634,484

The accompanying notes are an integral part

of these statements.

120

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

2023

2022

2021

(In thousands, except per share information)

Interest and dividend income:

Loans

890,562

747,901

719,153

Investment securities

102,505

102,922

72,893

Money market investments and interest-bearing cash accounts

30,419

11,791

2,662

Total interest and dividend income

1,023,486

862,614

794,708

Interest expense:

Deposits

185,461

46,361

41,482

Securities sold under agreements to repurchase:

Short-term

2,769

1,017

Long-term

6,538

9,963

Advances from the FHLB:

Short-term

4,811

1,475

Long-term

19,797

3,661

8,199

Other borrowings:

Short-term

Long-term

13,535

8,253

5,135

Total interest expense

226,376

67,321

64,779

Net interest income

797,110

795,293

729,929

Provision for credit losses - expense (benefit):

Loans and finance leases

66,644

25,679

(61,720)

Unfunded loan commitments

365

2,736

(3,568)

Debt securities

(6,069)

(719)

(410)

Provision for credit losses - expense (benefit)

60,940

27,696

(65,698)

Net interest income after provision for credit losses

736,170

767,597

795,627

Non-interest income:

Service charges and fees on deposit accounts

38,042

37,823

35,284

Mortgage banking activities

10,587

15,260

24,998

Gain on early extinguishment of debt

1,605

Insurance commission income

12,763

13,743

11,945

Card and processing income

43,909

40,416

36,508

Other non-interest income

25,788

15,850

12,429

Total non-interest income

132,694

123,092

121,164

Non-interest expenses:

Employees' compensation and benefits

222,855

206,038

200,457

Occupancy and equipment

85,911

88,277

93,253

Business promotion

19,626

18,231

15,359

Professional service fees

45,841

47,848

59,956

Taxes, other than income taxes

21,236

20,267

22,151

Federal Deposit Insurance Corporation ("FDIC")

deposit insurance

14,873

6,149

6,544

Net gain on OREO operations

(7,138)

(5,826)

(2,160)

Credit and debit card processing expenses

25,997

22,736

22,169

Communications

8,561

8,723

9,387

Merger and restructuring costs

26,435

Other non-interest expenses

33,666

30,662

35,423

Total non-interest expenses

471,428

443,105

488,974

Income before income taxes

397,436

447,584

427,817

Income tax expense

94,572

142,512

146,792

Net income

302,864

305,072

281,025

Net income attributable to common stockholders

302,864

305,072

277,338

Net income per common share:

Basic

1.72

1.60

1.32

Diluted

1.71

1.59

1.31

The accompanying notes are an integral part

of these statements.

121

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

Year Ended

December 31,

2023

2022

2021

(In thousands)

Net income

302,864

305,072

281,025

Other comprehensive income (loss), net of tax:

Available-for-sale debt securities:

Net unrealized holding gains (losses) on debt securities

(1)

165,420

(718,582)

(143,115)

Defined benefit plans adjustments:

Net actuarial gain (loss)

177

(2,199)

3,660

Reclassification adjustment for amortization of net actuarial loss

Other comprehensive income (loss) for the year, net of tax

165,608

(720,779)

(139,454)

Total comprehensive income (loss)

468,472

(415,707)

141,571

Year Ended

December 31,

2023

2022

2021

(In thousands)

Income tax effect of items included in other comprehensive income (loss):

Defined benefit plans adjustments:

Net actuarial gain (loss)

(107)

1,319

(2,199)

Reclassification adjustment for amortization of net actuarial loss

(6)

(1)

Total income tax effect of items included in other comprehensive income (loss)

(113)

1,318

(2,199)

(1) Net unrealized gains (losses) on available-for-sale

debt securities have no tax effect because securities

are either tax-exempt, held by an International

Banking Entity ("IBE")

unit or subsidiary, or have a full deferred tax asset valuation allowance.

The accompanying notes are an integral part of these statements.

122

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2023

2022

2021

(In thousands)

Cash flows from operating activities:

Net income

302,864

305,072

281,025

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

20,501

22,289

24,965

Amortization of intangible assets

7,735

8,816

11,407

Provision for credit losses - expense (benefit)

60,940

27,696

(65,698)

Deferred income tax expense

6,105

54,216

118,323

Stock-based compensation

7,799

5,407

5,460

Gain on early extinguishment of debt

(1,605)

Unrealized gain on derivative instruments

(301)

(1,098)

(4,227)

Net gain on disposals or sales, and impairments of premises

and equipment and other assets

(3,514)

(706)

(32)

Net gain on sales of loans and loans held-for-sale valuation adjustments

(1,572)

(5,498)

(14,791)

Net amortization of discounts, premiums, and deferred loan fees and

costs

1,223

(7,853)

(25,294)

Originations and purchases of loans held for sale

(147,460)

(214,962)

(503,200)

Sales and repayments of loans held for sale

149,888

235,199

528,253

Amortization of broker placement fees

309

106

218

Net amortization of premiums and discounts on investment securities

4,967

3,435

26,549

(Increase) decrease in accrued interest receivable

(5,437)

(11,340)

7,701

Increase (decrease) in accrued interest payable

18,430

1,706

(2,776)

(Increase) decrease in other assets

(16,619)

(2,437)

24,344

(Decrease) increase in other liabilities

(41,290)

20,437

(12,506)

Net cash provided by operating activities

362,963

440,485

399,721

Cash flows from investing activities:

Net (disbursements) repayments on loans held for investment

(758,232)

(603,853)

599,097

Proceeds from sales of loans held for investment

7,736

62,168

81,458

Proceeds from sales of repossessed assets

53,870

46,281

55,867

Purchases of available-for-sale debt securities

(5,458)

(512,327)

(3,447,921)

Proceeds from principal repayments and maturities of available-for-sale

debt securities

549,644

626,802

1,445,873

Purchases of held-to-maturity debt securities

(289,784)

Proceeds from principal repayments and maturities of held-to-maturity

debt securities

85,988

32,153

12,677

Additions to premises and equipment

(22,599)

(20,459)

(13,349)

Proceeds from sales of premises and equipment and other assets

4,475

1,196

832

Net redemptions (purchases) of other investments securities

5,643

(23,637)

5,322

Proceeds from the settlement of insurance claims - investing activities

483

550

Net cash paid from business combination

(3,381)

Net cash used in investing activities

(78,450)

(681,460)

(1,262,975)

Cash flows from financing activities:

Net increase (decrease) in deposits

470,981

(1,706,118)

2,472,579

Net (repayments) proceeds of short-term borrowings

(550,133)

550,133

Repayments of long-term borrowings

(19,795)

(500,000)

(240,000)

Proceeds from long-term borrowings

300,000

200,000

Repurchase of outstanding common stock

(203,241)

(277,769)

(216,522)

Dividends paid on common stock

(99,666)

(87,824)

(65,021)

Dividends paid on preferred stock

(2,453)

Redemption of preferred stock-

Series A through E

(36,104)

Net cash (used in) provided by financing activities

(101,854)

(1,821,578)

1,912,479

Net increase (decrease) in cash and cash equivalents

182,659

(2,062,553)

1,049,225

Cash and cash equivalents at beginning of year

480,505

2,543,058

1,493,833

Cash and cash equivalents at end of period

663,164

480,505

2,543,058

Cash and cash equivalents include:

Cash and due from banks

661,925

478,480

2,540,376

Money market investments

1,239

2,025

2,682

663,164

480,505

2,543,058

The accompanying notes are an integral part of these statements.

123

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY

Year Ended December 31,

2023

2022

2021

(In thousands, except per share information)

Preferred Stock:

Balance at beginning of year

36,104

Redemption of Series A through E Preferred Stock

(36,104)

Balance at end of year

Common Stock:

Balance at beginning of year

22,366

22,303

Common stock issued under stock-based compensation

plan

Balance at end of year

22,366

Additional Paid-In Capital:

Balance at beginning of year

970,722

972,547

965,385

Stock-based compensation expense

7,799

5,407

5,460

Common stock reissued/issued under stock-based compensation

plan

(13,531)

(7,365)

(63)

Restricted stock forfeited

717

133

531

Issuance costs of Series A through E Preferred Stock redeemed

1,234

Balance at end of year

965,707

970,722

972,547

Retained Earnings:

Balance at beginning of year

1,644,209

1,427,295

1,215,321

Cumulative adjustment of adoption of Accounting Standards Update

("ASU") 2022-02 (See Note 1)

(1,357)

Net income

302,864

305,072

281,025

Dividends on common stock (2023 - $

0.56

per share; 2022 - $

0.46

per share; 2021 - $

0.31

per share)

(99,604)

(88,158)

(65,364)

Dividends on preferred stock

(2,453)

Excess of redemption value over carrying value of Series

A through E Preferred Stock redeemed

(1,234)

Balance at end of year

1,846,112

1,644,209

1,427,295

Treasury Stock (at cost):

Balance at beginning of year

(506,979)

(236,442)

(19,389)

Common stock repurchases (See Note 17)

(203,241)

(277,769)

(216,522)

Common stock reissued under stock-based compensation plan

13,531

7,365

Restricted stock forfeited

(717)

(133)

(531)

Balance at end of year

(697,406)

(506,979)

(236,442)

Accumulated Other Comprehensive Loss, net of tax:

Balance at beginning of year

(804,778)

(83,999)

55,455

Other comprehensive income (loss), net of tax

165,608

(720,779)

(139,454)

Balance at end of year

(639,170)

(804,778)

(83,999)

Total stockholders’ equity

1,497,609

1,325,540

2,101,767

The accompanying notes are an integral part of these statements.

124

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Nature of Business and Summary of Significant Accounting Policies

125

Note 2 –

Money Market Investments

141

Note 3 –

Debt Securities

142

Note 4 –

Loans Held for Investment

152

Note 5

–

Allowance for Credit Losses for Loans and Finance Leases

179

Note 6

–

Premises and Equipment

182

Note 7 –

Other Real Estate Owned

183

Note 8 –

Related-Party Transactions

183

Note 9 –

Goodwill and Other Intangibles

184

Note 10 –

Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets

186

Note 11 –

Deposits

191

Note 12 –

Securities Sold Under Agreements to Repurchase (“Repurchase

Agreements”)

193

Note 13 –

Advances from the Federal Home Loan Bank (“FHLB”)

193

Note 14 –

Other Borrowings

194

Note 15 –

Earnings per Common Share

195

Note 16 –

Stock-Based Compensation

196

Note 17 –

Stockholders’ Equity

199

Note 18 –

Accumulated Other Comprehensive Loss

201

Note 19 –

Employee Benefit Plans

202

Note 20 –

Other Non-Interest Income

206

Note 21 –

Other Non-Interest Expenses

206

Note 22 –

Income Taxes

207

Note 23 –

Operating Leases

211

Note 24 –

Derivative Instruments and Hedging Activities

212

Note 25

–

Fair Value

215

Note 26

–

Revenue from Contracts with Customers

221

Note 27 –

Segment Information

224

Note 28 –

Supplemental Statement of Cash Flows Information

227

Note 29 –

Regulatory Matters, Commitments, and Contingencies

228

Note 30 –

First BanCorp. (Holding Company Only) Financial Information

232

125

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS

NOTE 1 –

NATURE OF BUSINESS AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business

First BanCorp. (the “Corporation”)

is a publicly owned, Puerto

Rico-chartered financial holding

company organized under

the laws

of the Commonwealth

of Puerto Rico in

1948. The Corporation

is subject to regulation,

supervision, and examination

by the Board

Governors of

the Federal

Reserve System

(the “Federal

Reserve Board”).

Through its

subsidiaries, including

its banking

subsidiary,

FirstBank Puerto Rico (“FirstBank”

or the “Bank”), the Corporation

provides full-service commercial

and consumer banking services,

mortgage banking

services, automobile

financing, trust

services, insurance

agency services,

and other

financial products

and services

with operations in Puerto Rico, the United States, the U.S. Virgin

Islands (the “USVI”), and the British Virgin

Islands (the “BVI”).

The Corporation

has two

wholly-owned subsidiaries:

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), and

FirstBank Insurance

Agency,

Inc.

(“FirstBank

Insurance

Agency”).

FirstBank

Puerto

Rico-chartered

commercial

bank,

and

FirstBank

Insurance

Agency is

a Puerto

Rico-chartered insurance

agency.

FirstBank is

subject to

the supervision,

examination, and

regulation of

both the

Office of

the Commissioner

of Financial

Institutions of

the Commonwealth

of Puerto

Rico (the

“OCIF”) and

the FDIC.

Deposits are

insured

through

the

FDIC

Deposit

Insurance

Fund.

FirstBank

also

operates

the

State

Florida,

subject

regulation

and

examination by

the Florida

Office of

Financial Regulation

and the

FDIC; in

the USVI,

subject to

regulation and

examination by

the

USVI

Division

Banking,

Insurance

and

Financial

Regulation;

and

in the

BVI,

subject to

regulation

by the

British Virgin

Islands

Financial

Services Commission.

The Consumer

Financial Protection

Bureau (the

“CFPB”) regulates

FirstBank’s

consumer

financial

products and services.

FirstBank

Insurance

Agency

subject

the

supervision,

examination,

and

regulation,

including

the

Office

the

Insurance

Commissioner of

the Commonwealth

of Puerto

Rico and

the Division

of Banking,

Insurance and

Financial Regulation

in the

USVI.

FirstBank conducts its

business through its

main office located

in San Juan, Puerto

Rico,

banking branches in

Puerto Rico,

eight

banking branches in the USVI and the BVI, and

eight

banking branches in the state of Florida (USA). FirstBank

has

six

wholly-owned

subsidiaries

with

operations

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

finance

company

specializing

the

origination

small

loans

with

offices

Puerto

Rico;

First

Management

Puerto

Rico,

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

international

banking

entity

(an

“IBE”)

organized

under the

International Banking

Entity Act

of Puerto

Rico; two

companies engaged

in the

operation of

certain real

estate properties;

and

limited

liability

corporation

organized

2022

under

the

laws

the

Commonwealth

Puerto

Rico

and

Puerto

Rico

Tax

Incentives Code (“Act 60 of 2019”), which commenced operations in

2023 and engages in investing and lending transactions.

General

The accompanying

consolidated audited financial

statements have

been prepared

in conformity

with generally accepted

accounting

principles in the

United States of

America (“GAAP”). The

following is a description

of the Corporation’s

most significant accounting

policies.

Principles of consolidation

The

consolidated

financial

statements

include

the

accounts

the

Corporation

and

its

subsidiaries.

All

significant

intercompany

balances

and

transactions

have

been

eliminated

consolidation.

The

results

operations

companies

assets

acquired

business combination are

included from the date

of acquisition. Entities in

which the Corporation

holds a controlling financial

interest

are

consolidated.

For

voting

interest

entity,

controlling

financial

interest

generally

where

the

Corporation

holds,

directly

indirectly,

more than

50 percent

of the

outstanding voting

shares. For

a VIE,

a controlling

financial interest

is where

the Corporation

has

the

power

direct

the

activities

entity

that

most

significantly

impact

the

entity’s

economic

performance

and

has

obligation

absorb

losses

the

right

receive

benefits

from

the

VIE.

Statutory

business

trusts

that

are

wholly

owned

the

Corporation and are issuers of trust-preferred securities

(“TRuPs”) and entities in which the Corporation has

a non-controlling interest,

are

not

consolidated

the

Corporation’s

consolidated

financial

statements

accordance

with

authoritative

guidance

issued

the

Financial Accounting Standards Board (“FASB”)

for consolidation of VIEs.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

126

Use of estimates in the preparation of financial statements

The

preparation

financial

statements

conformity

with GAAP

requires

management

make

estimates

and

assumptions

that

significantly

affect

amounts

reported

the

consolidated

financial

statements.

Although

estimates

and

assumptions

about

future

economic and market conditions (for

example, unemployment, market liquidity,

real estate prices, etc.) contemplate current

conditions

and

how

we expect

them to

change in

the future,

it is

reasonably

possible

that actual

conditions

could be

worse

than anticipated

those estimates, which could materially affect our results of operations

and financial condition.

The Corporation

utilizes processes

that involve

the use

of significant

estimates and

the judgements

of management

in determining

the amount

of its

ACL, income

taxes, as

well as

fair value

measurements

of investment

securities, goodwill,

other intangible

assets,

pension

plans,

mortgage

servicing

rights,

and

loans

held

for

sale.

with

any

estimate,

actual

results

could

differ

from

those

estimates.

Cash and cash equivalents

For purposes of

reporting cash

flows, cash and

cash equivalents include

cash on hand,

cash items in

transit, and

amounts due

from

the Federal Reserve Bank of New York

(the “FED”) and other depository institutions. The

term also includes money market funds and

short-term investments with original maturities of three months or less.

Investment securities

The Corporation classifies its investments in debt and equity securities into one

of four categories:

Held-to-maturity

— Debt

securities that

the entity

has the

intent and

ability to

hold to

maturity.

These securities

are carried

amortized

cost.

The

Corporation

may

not

sell

transfer

held-to-maturity

securities

without

calling

into

question

its

intent

hold other debt securities to

maturity, unless

a nonrecurring or unusual event

that could not have been reasonably

anticipated has

occurred.

Trading

— Debt securities that

are bought and

held principally for

the purpose of

selling them in

the near term.

These securities

are

carried

fair

value,

with

unrealized

gains

and

losses

reported

earnings.

December

31,

2023,

and

2022,

the

Corporation did not hold debt securities for trading purposes.

Available-for-sale

— Debt

securities not

classified as

held-to-maturity or

trading. These

securities are

carried at

fair value,

with

unrealized

holding

gains

and

losses,

net

deferred

taxes,

reported

other

comprehensive

loss

(“OCL”)

separate

component of

stockholders’ equity.

The unrealized

holding gains

and losses

do not

affect earnings

until they

are realized,

or an

ACL is recorded.

Equity

securities

—

Equity

securities

that

not

have

readily

available

fair

values

are

classified

equity

securities

the

consolidated

statements

financial

condition.

These

securities

are

stated

cost

less

impairment,

any.

This

category

principally

composed of

FHLB stock

that the

Corporation owns

to comply

with FHLB

regulatory requirements.

The realizable

value of

the FHLB

stock equals

its cost.

Also included

in this

category

are marketable

equity securities

held at

fair value

with

changes in unrealized gains or losses recorded through earnings in other

non-interest income.

Premiums

and

discounts

debt

securities

are

amortized

as an

adjustment

interest

income

investments

over

the life

the

related securities

under the

interest method

without anticipating

prepayments, except

for mortgage-backed

securities (“MBS”)

where

prepayments are anticipated. Premiums on

callable debt securities, if any,

are amortized to the earliest call date.

Purchases and sales of

securities are

recognized on

a trade-date

basis, the

date the

order to

buy or

sell is executed.

Gains and

losses on

sales are

determined

using the specific identification method.

A debt

security

is placed

on nonaccrual

status at

the time

any

principal

or interest

payment

becomes 90 days

delinquent.

Interest

accrued but

not received

for a

security placed

on nonaccrual

is reversed

against interest

income.

See Note

3 –

“Debt Securities”

for

additional information on nonaccrual debt securities.

Allowance

for

Credit

Losses

–

Held-to-Maturity

Debt

Securities:

December

31,

2023,

the

held-to-maturity

debt

securities

portfolio consisted of U.S. government-sponsored entities (“GSEs”)

MBS and Puerto Rico municipal bonds.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

127

The ACL

on held-to-maturity

debt securities

is based

on an

expected loss

methodology referred

to as

current expected

credit loss

(“CECL”)

methodology

major

security

type.

Any

expected

credit

loss

provided

through

the

ACL

held-to-maturity

debt

securities

and

deducted

from

the

amortized

cost

basis

the

security

that

the

statement

financial

condition

reflects

the

net

amount the Corporation expects to collect.

The Corporation

does not

recognize an

ACL for

GSEs’ MBS

since they

are either

explicitly or

implicitly guaranteed

by the

U.S.

government,

are highly

rated by

major rating

agencies, and

have a

long history

of no

credit losses.

For the

ACL of

held-to-maturity

Puerto

Rico municipal

bonds,

the Corporation

considers historical

credit loss

information

that is

adjusted for

current conditions

and

reasonable

and

supportable

forecasts.

These

Puerto

Rico

municipal

obligations

typically

are

not

issued

bearer

form, nor

are they

registered

with

the

Securities

and

Exchange

Commission

(“SEC”)

and

are

not

rated

external

credit

agencies.

These

financing

arrangements with Puerto

Rico municipalities were

issued in bond form

and accounted for as

securities but underwritten as

loans with

features

that

are

typically

found

commercial

loans.

Accordingly,

similar

commercial

loans,

internal

risk

rating

(

i.e

pass,

special

mention,

substandard,

doubtful,

loss)

assigned

each

bond

the

time

issuance

acquisition

and

monitored

continuous basis

with a

formal assessment

completed,

at a

minimum, on

a quarterly

basis. The

Corporation determines

the ACL

for

held-to-maturity

Puerto

Rico

municipal

bonds

based

the

product

cumulative

probability

default

(“PD”)

and

loss

given

default (“LGD”),

and the amortized

cost basis of

each bond over

its remaining expected

life. PD estimates

represent the point

-in-time

which

the

developed,

and

are

updated

quarterly

based

on,

among

other

things,

the

payment

performance

experience,

financial

performance

and

market

value

indicators,

and

current

and

forecasted

relevant

forward-looking

macroeconomic

variables

over the

expected life

of the

bonds,

to determine

a lifetime

term structure

PD curve.

LGD estimates are

determined based

on, among

other

things,

historical

charge-off

events

and

recovery

payments

(if

any),

government

sector

historical

loss

experience,

well

relevant current

and forecasted

macroeconomic expectations

of variables,

such as unemployment

rates, interest

rates, and

market risk

factors based on industry

performance, to determine a

lifetime term structure LGD

curve. Under this approach,

all future period losses

for each

instrument are

calculated using

the PD

and LGD

loss rates

derived

from the

term structure

curves applied

to the

amortized

cost

basis

each

bond.

For

the

relevant

macroeconomic

expectations

variables,

the

methodology

considers

initial

forecast

period

“reasonable

and

supportable

period”)

two

years

and

reversion

period

three

years,

utilizing

straight-line

approach and

reverting back

to the

historical macroeconomic

mean. After

the reversion

period, the

Corporation uses

a historical

loss

forecast period covering the remaining contractual

life based on the changes in key historical

economic variables during representative

historical

expansionary

and

recessionary

periods.

Furthermore,

the

Corporation

periodically

considers

the

need

for

qualitative

adjustments

the

ACL.

Qualitative

adjustments

may

and

include,

but

not

limited

to,

factors

such

as:

(i)

management’s

assessment

economic

forecasts

used

the

model

and

how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization

specific

risks

such

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 resolution strategies,

among others.

The Corporation

has elected not

to measure

an ACL on

accrued interest related

to held-to-maturity

debt securities,

as uncollectible

accrued interest

receivables are written

off on

a timely manner.

See Note 3

– “Debt Securities”

for additional

information about

ACL

balances for

held-to-maturity debt

securities, activity

during the

period, and

information about

changes in

circumstances that

caused

changes in the ACL for held-to-maturity debt securities during the years ended December

31, 2023, 2022, and 2021.

Allowance

for

Credit

Losses

–

Available-for-Sale

Debt

Securities:

For

available-for-sale

debt

securities

unrealized

loss

position, the Corporation first assesses whether

it intends to sell, or it is more

likely than not that it will be required

to sell, the security

before recovery of its amortized cost basis. If either of the criteria regarding

intent or requirement to sell is met, the difference between

fair

value

and

amortized

cost

is considered

to be

impaired and

recognized

in provision

for

credit losses.

For

available-for-sale

debt

securities that

do not

meet the

aforementioned

criteria, the

Corporation evaluates

whether the

decline in

fair value

has resulted

from

credit losses or

other factors. In

making this assessment, management

considers the cash position

of the issuer and

its cash and capital

generation

capacity,

which

could increase

diminish

the

issuer’s

ability

repay

its bond

obligations,

the

extent

to which

the

fair

value

less

than

the

amortized

cost

basis,

any

adverse

change

the

credit

conditions

and

liquidity

the

issuer,

taking

into

consideration the latest information

available about the financial condition

of the issuer, credit

ratings, the failure of the

issuer to make

scheduled

principal or

interest payments,

recent legislation

and government

actions affecting

the issuer’s

industry,

and actions

taken

by the

issuer to

deal with

the economic

climate. The

Corporation also

takes into

consideration changes

in the

near-term prospects

the underlying

collateral of

a security,

if any,

such as

changes in

default rates,

loss severity

given default,

and significant

changes in

prepayment

assumptions

and

the

level

cash

flows

generated

from

the

underlying

collateral,

any,

supporting

the

principal

and

interest payments

on the

debt securities.

If this

assessment indicates

that a

credit loss

exists, the present

value of

cash flows

expected

to be collected from

the security is compared

to the amortized cost

basis of the security.

If the present value

of cash flows expected

be collected

is less

than the

amortized cost

basis, a

credit loss

exists and

the Corporation

records an

ACL for

the credit

loss portion,

limited to the

amount by which

the fair value

is less than

the amortized cost

basis. Meanwhile, the

non-credit portion

is recognized in

OCL. Non-credit-related impairments result from other factors, including increased

liquidity spreads and higher interest rates.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

128

Losses

are

charged

against

the

ACL

when

management

believes

the

uncollectability

available-for-sale

debt

security

confirmed or

when either

of the

criteria regarding

intent or requirement

to sell

is met.

The Corporation

has elected

not to measure

ACL on

accrued interest

related to

available-for-sale

debt securities,

as uncollectible

accrued interest

receivables are

written off

in a

timely manner as indicated above.

Substantially all

of the

Corporation’s

available-for-sale debt

securities are

issued by

GSEs. These

securities are

either explicitly

implicitly guarant.eed

by the U.S.

government,

are highly

rated by

major rating

agencies, and

have a

long history

of no

credit losses.

Accordingly,

there

zero-credit

loss

expectation

these

securities.

For

further

information,

including

the

methodology

and

assumptions

used

for

the

discounted

cash

flow

analyses

performed

other

available-for-sale

debt

securities

such

private

label

MBS

and

bonds

issued

the Puerto

Rico

Housing

Finance

Authority

(“PRHFA”),

see

Note

–

“Debt

Securities”

and

Note

–

“Fair Value.”

Loans held for investment

Loans that the

Corporation has the

ability and

intent to hold

for the foreseeable

future,

or until maturity

or payoff,

are classified as

held

for

investment

and

are

reported

amortized

cost,

net

its

ACL.

The

substantial

majority

the

Corporation’s

loans

are

classified as held for investment.

Amortized cost is the principal outstanding

balance, net of unearned interest, cumulative

charge-offs,

unamortized deferred

origination fees

and costs,

and unamortized

premiums and

discounts. The

Corporation reports

credit card

loans

their

outstanding

unpaid

principal

balance

plus

uncollected

billed

interest

and

fees

net

such

amounts

deemed

uncollectible.

Interest

income

accrued

the

unpaid

principal

balance.

Fees

collected

and

costs

incurred

the

origination

new

loans

are

deferred

and amortized

using the

interest method

or a

method that

approximates the

interest method

over the

term of

the loan

as an

adjustment to

interest yield.

Unearned

interest on

certain personal

loans, auto

loans,

and finance

leases and

discounts and

premiums

are

recognized

income

under

method

that

approximates

the

interest

method.

When

loan

paid-off

sold,

any

remaining

unamortized net deferred fees, or costs, discounts and premiums are included

in loan interest income in the period of payoff.

Nonaccrual

and

Past-Due

Loans

–

Loans

which

the

recognition

interest

income

has

been

discontinued

are

designated

nonaccrual.

Loans

are

classified

nonaccrual

when

they

are

days

past

due

for

interest

and

principal,

except

for

residential

mortgage loans insured or guaranteed

by the Federal Housing Administration

(the “FHA”), the Veterans

Administration (the “VA”)

the

PRHFA,

and

credit

card

loans.

the

Corporation’s

policy

report

delinquent

mortgage

loans

insured

the

FHA,

guaranteed by

the VA

or the

PRHFA,

as loans

past due

days and

still accruing

as opposed

to nonaccrual

loans since

the principal

repayment

insured

guaranteed,

and

such

loans

continue

accrue

interest

the

rate

guaranteed

the

government

agency.

However,

when

such FHA/VA

loans are

over

months delinquent,

the Corporation

discontinues the

recognition

of income

taking

into

consideration

the

FHA

interest

curtailment

process,

and

with

respect

PRHFA

loans

when

such

loans

are

over

days

delinquent. Credit card loans continue

to accrue finance charges and

fees until charged off at

180

days. Loans generally may be placed

on nonaccrual status

prior to when required

by the policies described

above when the full

and timely collection

of interest or principal

becomes

uncertain

(generally

based

assessment

the

borrower’s

financial

condition

and

the

adequacy

collateral,

any).

When

loan

placed

nonaccrual

status,

any

accrued

but

uncollected

interest

income

reversed

and

charged

against

interest

income and amortization

of any net

deferred fees is suspended.

Interest income on

nonaccrual loans is recognized

only to the extent

is received in

cash. However,

when there is

doubt regarding the

ultimate collectability of

loan principal, all

cash thereafter received

applied to reduce

the carrying value of

such loans (

i.e.

, the cost recovery

method). Under the cost-recovery

method, interest income

not recognized until the loan

balance has been collected

in full, including the charged

-off portion.

Generally,

the Corporation returns a

loan

accrual

status

when

all

delinquent

interest

and

principal

becomes

current

under

the

terms

the

loan

agreement,

after

sustained

period

repayment

performance

(

six months

)

and

the

loan

well

secured

and

the

process

collection,

and

full

repayment of

the remaining

contractual principal

and interest

is expected.

Loans that

are past

due 30

days or

more as

to principal

interest

are

considered

delinquent,

with

the

exception

of residential

mortgage,

commercial

mortgage,

and

construction

loans,

which

are

considered

past

due

when

the

borrower

arrears

two

monthly

payments.

The

Corporation

has

elected

not

measure an

ACL on

accrued interest

related to

loans held

for investment,

as uncollectible

accrued interest

receivables are

written off

on a timely manner.

Collateral-dependent Loans

– Certain commercial,

residential and consumer

loans for which

repayment is expected

to be provided

substantially

through

the

operation

sale

the

loan

collateral

are

considered

collateral-dependent.

Commercial

and

construction loans of $

0.5

million or more and for

which borrowers exhibit specific

risk characteristics, such as repayment

capacity or

credit deterioration,

are considered

collateral dependent.

Residential mortgage

loans and

home equity

lines of

credit are

considered

collateral dependent when

they are

180

days or more past

due. The ACL of

collateral dependent loans is

based on the fair

value of the

collateral at

the reporting

date, adjusted

for undiscounted

estimated costs

to sell,

as further

discussed below.

Auto loans

and finance

leases are not considered collateral dependent because its ACL is calculated using

a PD/LGD model as further discussed below.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

129

Charge-off

of Uncollectible

Loans

–

Net charge

-offs consist

of the

unpaid principal

balances of

loans held

for investment

that the

Corporation

determines are

uncollectible,

net of

recovered amounts.

The Corporation

records charge

-offs as

a reduction

to the

ACL

and subsequent recoveries of previously charged-off

amounts are credited to the ACL.

Collateral

dependent

loans

the

construction,

commercial

mortgage,

and

commercial

and

industrial

(“C&I”)

loan

portfolios

are

written

down

their

net

realizable

value

(fair

value

collateral,

less

estimated

costs

sell)

when

loans

are

considered

uncollectible. Within

the consumer loan portfolio,

closed-end consumer loans,

including auto loans and finance

leases, are charged off

when payments are

120

days in arrears. Open-end (revolving

credit) consumer loans, including credit

card loans, are charged off

when

payments are

180

days in arrears. Residential mortgage

loans that are

180

days delinquent are reviewed

and charged-off, as

needed, to

the fair value

of the underlying

collateral less cost

to sell. Generally,

all loans may

be charged off

or written down

to the fair

value of

the collateral

prior to

the application

of the

policies described

above if

a loss-confirming

event has

occurred. Loss-confirming

events

include, but

are not

limited to,

bankruptcy (unsecured),

continued delinquency,

or receipt

of an

asset valuation

indicating a

collateral

deficiency when the asset is the sole source of repayment.

Modifications Granted

to Debtors

Experiencing

Financial Difficulties

– Effective

January 1,

2023, the

Corporation adopted

ASU

2022-02

Financial

Instruments

–

Credit

Losses

(Topic

326)

Troubled

Debt

Restructurings

(“TDR”)

and

Vintage

Disclosures.

Upon

adoption, modifications

granted to debtors

experiencing financial

difficulties during

the current reporting

period in which

there was a

change in the timing

and/or amount of contractual

cash flows in the

form of a reduction in

interest rate, term extension,

an other-than-

insignificant payment

delay,

or any

combination thereof

are disclosed.

For comparative

reporting periods,

modifications resulting

troubled debt

restructurings (“TDRs”)

in which

the creditor for

economic or

legal reasons

related to

the debtor’s

financial difficulties

grants

concession

the

debtor

that

would

not

otherwise

consider

are

disclosed.

debtor

considered

experiencing

financial

difficulties

when

there

significant

doubt

about

the

debtor’s

ability

make

required

payments

the

debt

get

equivalent

financing

from

another

creditor

market

rate

for

similar

debt.

Modified

loans

are

classified

either

accrual

nonaccrual loans.

Loans in

accrual status

may remain

in accrual

status when

their contractual

terms have

been modified

if the

loans

had

demonstrated

performance

prior

the

restructuring

and

payment

full

under

the

restructured

terms

expected.

Otherwise,

modified loans on nonaccrual

status at the time

of the restructuring will

remain on nonaccrual status

until the borrower has

proven the

ability to perform

under the modified

structure, generally for a

minimum of six months,

and there is evidence

that such payments

can,

and

are

likely

to,

continue

as agreed.

Furthermore,

the

Corporation

applies

non-discounted

flow

portfolio-based

approach

for

the

estimation of the ACL of modified loans to borrowers experiencing financial

difficulties for all portfolios.

Refer

Accounting

Standards

Updates

(“ASU”)

2022-02,

“Financial

Instruments

–

Credit

Losses

(Topic

326):

Troubled

Debt

Restructurings and Vintage

Disclosures” below for

the financial impact recognized

upon adoption of

this standard and

information on

the amendments to the TDR guidance that were effective on or after

January 1, 2023.

Allowance for credit losses for loans and finance leases

The ACL

for

loans and

finance leases

held

for

investment

is a

valuation

account

that is

deducted

from the

loans’

amortized

cost

basis to present

the net amount expected

to be collected on

loans. Loans are charged

-off against the

ACL when management

confirms

the loan balance is uncollectable.

The Corporation estimates the

ACL 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

expected

credit

losses,

well

adjustments

historical

loss

information

made

for

differences

current

loan-specific

risk

characteristics,

such

any

difference

underwriting

standards,

portfolio

mix,

delinquency

level,

term.

Additionally,

the

Corporation’s

assessment

involves

evaluating

key

factors,

which

include

credit

and

macroeconomic

indicators,

such

changes

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.

Expected

credit losses

are

estimated

over the contractual term

of the loans, adjusted by

prepayments when appropriate.

The contractual term excludes

expected extensions,

and renewals,

unless

the extension or renewal options are included in

the original or modified contract at the reporting date and

are not

unconditionally cancellable by the Corporation.

The

Corporation

estimates

the

ACL

primarily

based

PD/LGD

modeled

approach,

individually

primarily

for

collateral

dependent loans. The Corporation

evaluates the need for changes

to the ACL by portfolio

segments and classes of loans

within certain

those

portfolio

segments.

Factors

such

the

credit

risk

inherent

portfolio

and

how

the

Corporation

monitors

the

quality, as well as the estimation

approach to estimate credit losses, are considered in the determination

of such portfolio segments and

classes. The Corporation has identified the following portfolio segments:

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

130

●

Residential

mortgage

– Residential

mortgage

loans

are

loans

secured

residential

real

property

together

with

the

right

receive

the payment

of principal

and interest

on the

loan. The

majority of

the Corporation’s

residential

loans are

fixed-rate

first lien closed-end loans secured by 1-4 single-family residential properties.

●

Commercial

mortgage

– Commercial

mortgage

loans

are

loans

secured

primarily

commercial

real

estate

properties

for

which

the

primary

source

repayment

comes

from

rent

and

lease

payments

that

are

generated

income-producing

property.

●

Commercial and Industrial

– C&I loans include both unsecured and secured

loans for which the primary source of repayment

comes

from

the

ongoing

operations

and

activities

conducted

the

borrower

and

not

from

rental

income

the

sale

refinancing

any

underlying

real

estate

collateral;

thus,

credit

risk

largely

dependent

the

commercial

borrower’s

current

and

expected

financial condition.

The

C&I

loan

portfolio

consists

loans

granted

large

corporate

customers

well as middle-market customers across several industries, and the government

sector.

●

Construction

–

Construction

loans

consist

generally

loans

secured

real

estate

made

finance

the

construction

industrial, commercial, or residential

buildings and include loans to

finance land development in preparation

for erecting new

structures.

These

loans

involve

inherently

higher

level

risk

and

sensitivity

market

conditions.

Demand

from

prospective tenants or purchasers may erode after construction begins because

of a general economic slowdown or otherwise.

●

Consumer

–

Consumer loans generally

consist of unsecured

and secured loans

extended to individuals

for household, family,

and other personal expenditures, including several classes of products.

For

purposes

the

ACL

determination,

the

Corporation

stratifies

portfolio

segments

two

main

regions

(

i.e.,

the

Puerto

Rico/Virgin

Islands

region

and

the

Florida

region).

The

ACL

measured

using

PD/LGD

model

that

calculated

based

the

product of a

cumulative PD and

LGD. PD and

LGD estimates are

updated quarterly

for each loan

over the remaining

expected life

determine

lifetime

term

structure

curves.

Under

this approach,

the

Corporation

calculates losses

for

each

loan

for

all future

periods

using the

PD and

LGD loss

rates derived

from the

term structure

curves applied

to the

amortized cost

basis of

the loans,

considering

prepayments.

For

residential

mortgage

loans,

the

Corporation

stratifies

the

portfolio

segment

the

following

two

classes:

(i)

government-

guaranteed

residential

mortgage

loans,

and

(ii)

conventional

mortgage

loans.

Government-guaranteed

loans

are

those

originated

qualified

borrowers

under

the

FHA

and

the

standards.

Originated

loans

that

meet

the

FHA’s

standards

qualify

for

the

FHA’s

insurance program whereas

loans that meet the

standards of the VA

are guaranteed by

such entity.

No credit losses are

determined for

loans insured or guaranteed

by the FHA or the VA

due to the explicit

guarantee of the U.S. federal

government. On the other

hand, an

ACL is

calculated for

conventional

residential mortgage

loans, which

are loans

that do

not qualify

under the

FHA or

programs.

estimates

are

based

on,

among

other

things,

historical

payment

performance

and

relevant

current

and

forward-looking

macroeconomic variables,

such as regional

unemployment rates. On

the other hand,

LGD estimates are based

on, among other

things,

historical

charge-off

events

and

recovery

payments,

loan-to-value

attributes,

and

relevant

current

and

forecasted

macroeconomic

variables, such as the regional housing price index.

For commercial

mortgage loans,

PD estimates

are based on,

among other

things, industry historical

loss experience,

property type,

occupancy,

and

relevant

current

and

forward-looking

macroeconomic

variables.

the

other

hand,

LGD

estimates

are

based

historical charge-off events and recovery

payments, industry historical loss experience, specific attributes of

the loans, such as loan-to-

value,

debt

service

coverage

ratios,

and

net

operating

income,

well

relevant

current

and

forecasted

macroeconomic

variables

expectations,

such

commercial

real

estate

price

indexes,

the

gross

domestic

product

(“GDP”),

interest

rates,

and

unemployment

rates, among others.

For C&I

loans, PD

estimates are

based on

industry historical

loss experience,

financial performance

and market

value indicators,

and

current

and

forecasted

relevant

forward-looking

macroeconomic

variables.

the

other

hand,

LGD

estimates

are

based

industry

historical

loss

experience,

specific

attributes

the loans,

such

as loan

value,

well

as relevant

current

and

forecasted

expectations

for

macroeconomic

variables,

such

unemployment

rates,

interest

rates,

and

market

risk

factors

based

industry

performance and the equity market.

For

construction

loans,

estimates

are

based

on,

among

other

things,

historical

payment

performance

experience,

industry

historical

loss experience,

underlying

type

of collateral,

and

relevant

current and

forward-looking

macroeconomic

variables. On

the

other

hand,

LGD

estimates

are

based

historical

charge-off

events

and

recovery

payments,

industry

historical

loss

experience,

specific attributes of the

loans, such as loan-to-value, debt service coverage

ratios, and relevant current and

forecasted macroeconomic

variables, such as unemployment rates, GDP,

interest rates, and real estate price indexes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

131

For consumer loans,

the Corporation stratifies

the portfolio segment by

the following five classes: (i)

auto loans; (ii) finance

leases;

(iii) credit

cards; (iv)

personal loans;

and (v)

other consumer

loans, such

as open-end

home equity

revolving lines

of credit

and other

types

consumer

credit

lines,

among

others.

determining

the

ACL,

management

considers

consumer

loans

risk

characteristics

including, but not limited to,

credit quality indicators such as

payment performance period, delinquency

and original FICO scores. For

auto loans and finance

leases, PD estimates are based on,

among other things, the historical

payment performance and relevant

current

and forward-looking macroeconomic

variables, such as regional

unemployment rates. On the

other hand, LGD estimates

are primarily

based

historical

charge-off

events

and

recovery

payments.

For

the

credit

card

and

personal

loan

portfolios,

the

Corporation

determines

the ACL

on a

pool basis,

based on

products

PDs and

LGDs developed

considering

historical

losses for

each origination

vintage by

length of

loan terms,

by geography,

payment performance

and by

credit score.

The PD

and LGD

for each cohort

consider

key macroeconomic variables, such as regional GDP,

unemployment rates, and retail sales, among others.

For the

ACL determination

of all

portfolios, the

expectations for

relevant macroeconomic

variables related

to the

Puerto Rico

and

Virgin

Islands

region consider

an initial

reasonable

and

supportable

period of

two years

and

reversion

period

of up

three years

utilizing a

straight-line approach

and reverting

back to

the historical

macroeconomic

mean. For

the Florida

region, the

methodology

considers

reasonable

and

supportable

forecast

period

and

implicit

reversion

towards

the

historical

trend

that

varies

for

each

macroeconomic variable.

After the reversion

period, a

historical loss

forecast period

covering the

remaining contractual

life, adjusted

for prepayments,

is used

based on

the changes

in key

historical economic

variables during

representative historical

expansionary and

recessionary periods.

Furthermore, the

Corporation periodically

considers the

need for

qualitative adjustments

to the

ACL. Qualitative

adjustments may

be related to

and include, but not

be limited to,

factors such as: (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,

including, but

not

limited to,

expectations about

interest rate,

inflation, and

real estate

price levels,

as well

as labor

market challenges;

(ii) organization

specific

risks

such

credit

concentrations,

collateral

specific

risks,

nature

and

size

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

non-collateral

dependent

loans

previously

written

down

their

respective

realizable

values,

generally

measured

using a risk-adjusted discounted

cash flow method. Under this

approach, all future cash

flows (interest and principal) for

each loan are

adjusted by

the PDs

and LGDs

derived from

the term

structure curves

and prepayments

and then

discounted at

the effective

interest

rate as of the reporting date to arrive at the net present value of future cash

flows.

See Note

5 –

“Allowance

for Credit

Losses for

Loans

and Finance

Leases” for

additional information

about reserve

balances

for

each portfolio segment, activity during the period, and information

about changes in circumstances that caused changes in the ACL for

loans and finance leases during the years ended December 31, 2023,

2022, and 2021.

Refer

ASU

2022-02

discussion

below

for

information

the

amendments

the

TDR

guidance

that

are

effective

after

January 1, 2023.

Allowance for credit losses on off-balance sheet credit exposures and

other assets

The Corporation estimates expected

credit losses over the contractual period

in which the Corporation is exposed to

credit risk via a

contractual

obligation

extend

credit

unless

the

obligation

unconditionally

cancellable

the

Corporation.

The

ACL

off-

balance sheet

credit exposures is

adjusted as a

provision for credit

loss expense. The

estimate includes consideration

of the likelihood

that funding

will occur and

an estimate of

expected credit

losses on commitments

expected to be

funded over its

estimated life.

As of

December 31,

2023, the

off-balance sheet

credit exposures

primarily consisted

of unfunded

loan commitments

and standby

letters of

credit

for

commercial

and

construction

loans.

The

Corporation

utilized

the

PDs

and

LGDs

derived

from

the

above-explained

methodologies

for

the

commercial

and

construction

loan

portfolios.

Under

this

approach,

all

future

period

losses

for

each

loan

are

calculated using

the PD

and LGD

loss rates

derived from

the term

structure curves

applied to

the usage

given default

exposure.

The

ACL on

off-balance sheet

credit exposures

is included

as part of

accounts payable

and other

liabilities in

the consolidated

statements

of financial condition with adjustments included as part of the provision

for credit losses in the consolidated statements of income.

See Note

5 –

“Allowance

for Credit

Losses” for

Loans

and

Finance

Leases for

additional information

about reserve

balances

for

unfunded

loan commitments,

activity during

the period,

and information

about changes

in circumstances

that caused

changes in

the

ACL for off-balance sheet credit exposures

during the years ended December 31, 2023, 2022 and 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

132

The

Corporation

also

estimates

expected

credit

losses

for

certain

accounts

receivable,

primarily

claims

from

government-

guaranteed

loans,

loan

servicing-related

receivables,

and

other

receivables.

The

ACL

on other

assets

measured

amortized

cost

included

as part

of other

assets in

the consolidated

statements of

financial condition

with adjustments

included

as part

of other

non-

interest expenses

in the consolidated

statements of income.

As of December

31, 2023 and

2022, the

ACL on other

assets measured at

amortized cost was immaterial.

Loans held for sale

Loans

that the

Corporation

intends to

sell or

that

the Corporation

does not

have

the ability

and

intent to

hold

for the

foreseeable

future

are

classified

held-for-sale

loans.

Loans

held

for

sale

are

recorded

the

lower

cost

fair

value

less

costs

sell.

Generally,

the

loans

held-for-sale

portfolio

consists

conforming

residential

mortgage

loans

that

will

pooled

into

Government

National Mortgage Association (“GNMA”)

MBS, which are then sold to

investors, and conforming residential mortgage

loans that the

Corporation intends

to sell to

GSEs, such as

the Federal National

Mortgage Association

(“FNMA”) and the

U.S. Federal Home

Loan

Mortgage Corporation (“FHLMC”).

Generally,

residential mortgage

loans held for sale

are valued on

an aggregate portfolio

basis and

the

value

primarily

derived

from

quotations

based

the

MBS

market.

The

amount

which

cost

exceeds

market

value

the

aggregate portfolio

of residential

mortgage loans

held for

sale, if

any,

is accounted

for as

a valuation

allowance with

changes therein

included

the

determination

net

income

and

reported

part

mortgage

banking

activities

the

consolidated

statements

income.

Loan

costs

and

fees

are

deferred

origination

and

are

recognized

income

the

time

sale

and

are

included

the

amortized cost basis when

evaluating the need for

a valuation allowance. The

fair value of commercial and

construction loans held for

sale, if any,

is primarily derived

from external appraisals,

or broker price

opinions that the

Corporation considers,

with changes in

the

valuation allowance reported as part of other non-interest income

in the consolidated statements of income.

In certain circumstances,

the Corporation transfers

loans from/to held

for sale or held

for investment based

on a change in

strategy.

If such a

change in holding

strategy is made, significant

adjustments to the loans’

carrying values may

be necessary.

Reclassifications

of loans held

for investment to held

for sale are made

at the amortized

cost on the date

of transfer and

establish a new cost

basis upon

transfer.

Write-downs of

loans transferred from

held for investment

to held for

sale are recorded

as charge-offs at

the time of

transfer.

Any

previously

recorded

ACL

reversed

earnings

after

applying

the

write-down

policy.

Subsequent

changes

value

below

amortized cost

are recorded

through a

valuation allowance

and are

reflected in

non-interest income

in the

consolidated statements

income.

Reclassifications

loans

held

for

sale

held

for

investment

are

made

the

amortized

cost

the

transfer

date

and

any

previously

recorded valuation

allowance is

reversed in

earnings. Upon

transfer to

held for

investment, the

Corporation calculates

ACL using the CECL impairment model.

Transfers and servicing of financial assets and extinguishment

of liabilities

After a transfer of

financial assets in a

transaction that qualifies

for accounting as

a sale, the Corporation

derecognizes the financial

assets when it has surrendered control and derecognizes liabilities when they

are extinguished.

A transfer of financial

assets in which the

Corporation surrenders control

over the assets is

accounted for as

a sale to the extent

that

consideration other

than beneficial

interests is

received in

exchange. The

criteria that

must be

met to

determine that

the control

over

transferred

assets has

been surrendered

include

the following:

(i) the assets

must be

isolated from

creditors of

the transferor;

(ii) the

transferee

must

obtain

the

right

(free

conditions

that

constrain

from

taking

advantage

that

right)

pledge

exchange

the

transferred

assets;

and

(iii) the

transferor

cannot

maintain

effective

control

over

the

transferred

assets

through

agreement

repurchase

them

before

their

maturity.

When

the

Corporation

transfers

financial

assets

and

the

transfer

fails

any

one

the

above

criteria,

the

Corporation

prevented

from

derecognizing

the

transferred

financial

assets

and

the

transaction

accounted

for

secured borrowing.

Servicing assets

The Corporation recognizes

as separate assets the

rights to service

loans for others,

whether those servicing

assets are originated

purchased. In the ordinary course of business, loans are

pooled into GNMA MBS for sale in the secondary

market or sold to FNMA or

FHLMC, with

servicing retained.

When the

Corporation sells

mortgage

loans, it

recognizes any

retained servicing

right (“servicing

assets” or “MSRs”) at the time of sale, based on its fair value.

MSRs

retained

sale

securitization

arise

from

contractual

agreements

between

the

Corporation

and

investors

MBS

and

mortgage

loans.

Under

these

contracts,

the

Corporation

performs

loan-servicing

functions

exchange

for

fees

and

other

remuneration. The

MSRs, included as

part of other

assets in the

statements of financial

condition, entitle

the Corporation to

servicing

fees

based

the

outstanding

principal

balance

the

mortgage

loans

and

the

contractual

servicing

rate.

The

servicing

fees

are

credited

income

monthly

basis

when

collected

and

recorded

part

mortgage

banking

activities

the

consolidated

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

133

statements of income. In

addition, the Corporation generally receives

other remuneration consisting of

mortgagor-contracted fees such

as late charges and prepayment penalties, which are credited to income

when collected.

Considerable judgment is required

to determine the fair value of

the Corporation’s

MSRs. Unlike highly liquid investments,

the fair

value

MSRs

cannot

readily

determined

because

these

assets

are

not

actively

traded

securities

markets.

The

initial

carrying

value

MSR is

determined

based

its fair

value.

The Corporation

determines

the

fair

value

the

MSRs using

discounted

static cash

flow analysis,

which incorporates

current market

assumptions commonly

used by

buyers of

these MSRs

and was

derived

from

prevailing

conditions

the

secondary

servicing

market.

The

valuation

the

Corporation’s

MSRs

incorporates

two

sets

assumptions: (i) market-derived

assumptions for discount

rates, servicing costs,

escrow earnings rates,

floating earnings rates,

and the

cost

funds;

and

(ii) market

assumptions

calibrated

the

Corporation’s

loan

characteristics

and

portfolio

behavior

for

escrow

balances, delinquencies and foreclosures, late fees, prepayments, and prepayment

penalties.

Once

recorded,

the

Corporation

periodically

evaluates

MSRs

for

impairment.

Impairments

are

recognized

through

valuation

allowance for

each individual

stratum of

servicing assets.

For purposes

of performing

the MSR

impairment evaluation,

the servicing

portfolio is

stratified on

the basis of

certain risk

characteristics, such

as region,

terms, and

coupons. Impairment

charges are

recorded

as part of

revenues from mortgage

banking activities in

the consolidated statements

of income. If

the value of

the MSRs subsequently

increases, the recovery

in value is recognized

in current period earnings

also as part of

revenues from mortgage

banking activities and

the carrying

value of

the MSR

is adjusted

through

a reduction

in the

valuation

allowance.

The Corporation

conducts an

other-than-

temporary

impairment

analysis

evaluate

whether

loss

the

value

the

MSR

particular

stratum,

any,

other

than

temporary or

not. When

the recovery

of the

value is

unlikely in

the foreseeable

future, a write-down

of the

MSR in

the stratum

to its

estimated recoverable value is charged to the valuation

allowance.

The

MSRs

are

amortized

over

the

estimated

life

the

underlying

loans

based

income

forecast

method

reduction

servicing income.

The income forecast

method of amortization

is based on

projected cash flows.

A particular periodic

amortization is

calculated

applying

the

carrying

amount

the

MSRs

the

ratio

the

cash

flows

projected

for

the

current

period

total

remaining net MSR forecasted cash flow.

Premises and equipment

Premises

and

equipment

are

carried

cost,

net

accumulated

depreciation

and

amortization.

Depreciation

provided

the

straight-line method over the estimated useful

life of each type of asset. Amortization of

leasehold improvements is computed over

the

terms

the

leases

(

i.e.

the

contractual

term

plus

lease

renewals

that

are

reasonably

assured)

the

estimated

useful

lives

the

improvements, whichever

is shorter.

Costs of

maintenance and

repairs that

do not

improve or

extend the

life of

the respective

assets

are expensed

as incurred.

Costs of

renewals and

betterments

are capitalized.

When

the Corporation

sells or

disposes of

assets, their

cost and related

accumulated depreciation

are removed from

the accounts and

any gain or

loss is reflected

in earnings as

part of other

non-interest

income

the

consolidated

statements

income.

When

the

asset

longer

used

operations,

and

the Corporation

intends to

sell it,

the asset

is reclassified

to other

assets held

for sale

and is

reported at

the lower

of the

carrying amount

or fair

value

less cost to

sell. Premises

and equipment

are evaluated

for impairment

whenever events

or changes

in circumstances

indicate that

the

carrying amount

of the

asset may

not be

recoverable. Impairments

on premises

and equipment

are included

as part of

occupancy and

equipment expenses in the consolidated statements of income.

Operating leases

The Corporation,

as lessee,

determines

if an

arrangement

is a

lease or

contains a

lease at

inception.

Operating lease

liabilities are

recognized

based

the

present

value

the

remaining

lease

payments,

discounted

using

the

discount

rate

for

the

lease

the

commencement

date,

acquisition

date

case

business

combination.

the

rates

implicit

the

Corporation’s

operating

leases are

not readily

determinable,

the Corporation

generally uses

an incremental

borrowing

rate based

on information

available

the commencement

date to

determine the

present value

of future

lease payments.

The incremental

borrowing rate

is calculated

based

on fully

amortizing secured

borrowings. Operating

right-of-use (“ROU”)

assets are

generally recognized

based on

the amount

of the

initial measurement of the

lease liability. Non-lease

components, such as common

area maintenance charges,

are not considered a part

of the

gross-up of

the ROU

asset and

lease liability

and are

recognized as

incurred. The

Corporation’s

leases are

primarily related

operating leases

for the

Bank’s

branches. Most

of the

Corporation’s

leases with

operating ROU

assets have

terms of

two years

years

, some

of which

include options

to extend

the leases

for up

ten years

The Corporation

does not

recognize ROU

assets and

lease

liabilities

that

arise

from

short-term

leases

(less

than

months).

Operating

lease

expense,

which

included

part

occupancy and equipment expenses

in the consolidated statements

of income,

is recognized on a straight-line

basis over the lease term

that is based

on the

Corporation’s

assessment of

whether the

renewal options

are reasonably

certain to be

exercised. The

Corporation

includes

the

ROU

assets

and

lease

liabilities

part

other

assets

and

accounts

payable

and

other

liabilities,

respectively,

the

consolidated statements

of financial condition.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

134

As of December 31, 2023 and 2022, the Corporation, as lessee, did

t have any leases that qualified as finance leases.

Other real estate owned

OREO,

which

consists

real estate

acquired

settlement of

loans,

is recorded

at fair

value

less estimated

costs to

sell the

real

estate acquired.

Generally,

loans have

been

written down

to their

net realizable

value

prior

foreclosure.

Any further

reduction

their

net

realizable

value

recorded

with

charge

the

ACL

the

time

foreclosure

within

six

months

after

foreclosure.

Thereafter, costs of maintaining and

operating these properties, losses recognized on the periodic reevaluations of

these properties, and

gains or

losses resulting

from the

sale of

these properties

are charged

or credited

to earnings

and are

included as

part of

net gain

OREO operations in the consolidated statements of income. Appraisals are obtained

periodically, generally

on an annual basis

Claims arising from FHA/VA

government-guaranteed residential mortgage loans

Upon

the

foreclosure

property

collateralizing

FHA/VA

government-guaranteed

residential

mortgage

loan,

the

Corporation

derecognizes

the

government-guaranteed

mortgage

loan

and

recognizes

receivable

part

other

assets

the

consolidated

statements

condition

the

conditions

ASC

Subtopic

310-40,

“Reclassification

Residential

Real

Estate

Collateralized

Consumer

Mortgage

Loans

upon

Foreclosure,”

(“ASC

Subtopic

310-40”)

are

met.

See

Note

7–

“Other

Real

Estate

Owned”

for

additional information

on foreclosures

associated to

FHA/VA

government-guaranteed residential

mortgage loans

reclassified to

other

assets as of December 31, 2023 and 2022.

Goodwill and other intangible assets

Goodwill

–

Goodwill

represents

the

cost

excess

the

fair

value

net

assets

acquired

(including

identifiable

intangibles)

transactions accounted

for as

business combinations.

The Corporation

allocates goodwill

to the

reporting unit(s)

that are

expected to

benefit from

the synergies

of the

business combination.

Once goodwill

has been

assigned to

a reporting

unit, it

no longer

retains its

association with

a particular

acquisition, and

all of

the activities within

a reporting

unit, whether

acquired or

internally generated,

are

available to support

the value of the goodwill.

The Corporation tests goodwill

for impairment at

least annually and more

frequently if

circumstances exist that indicate a possible reduction

in the fair value of a reporting unit below its carrying

value. If, after assessing all

relevant

events

circumstances,

the

Corporation

concludes

that

more-likely-than-not

that

the

fair

value

reporting

unit

below its

carrying value,

then an

impairment test

is required.

In addition

to the

goodwill recorded

at the

Commercial and

Corporate,

Consumer Retail, and Mortgage

Banking reporting units in connection

with the acquisition of Banco

Santander Puerto Rico (“BSPR”)

in 2020,

the Corporation’s

goodwill is

mostly related

to the

United States

(Florida) reporting

unit. See

Note 9–

“Goodwill and

Other

Intangible Assets” for information on the qualitative assessment performed

by the Corporation during the fourth quarter of 2023.

Other Intangible

Assets

– As

of December

31 2023,

Corporation’s

other intangible

assets relate

to core

deposits. The

Corporation

amortizes

core

deposit

intangibles

based

the projected

useful

lives

the related

deposits, generally

a straight

-line basis,

and

reviews these

assets for

impairment whenever

events or

changes in

circumstances indicate

that the

carrying amount

may not

exceed

their fair value.

Securities purchased and sold under agreements to repurchase

The

Corporation

accounts

for

securities

purchased

under

resale

agreements

and

securities

sold

under

repurchase

agreements

collateralized financing

transactions. Generally,

the Corporation

records these

agreements at

the amount

at which

the securities

were

purchased or

sold. The

Corporation monitors

the fair

value of

securities purchased

and sold,

and obtains

collateral from,

or returns

to,

the counterparties

when

appropriate.

These financing

transactions

do not

create material

credit risk

given

the collateral

involved

and the related monitoring process.

The Corporation sells and acquires

securities under agreements to repurchase or

resell the same or

similar

securities.

Generally,

similar

securities

are

securities

from

the

same

issuer,

with

identical

form

and

type,

similar

maturity,

identical

contractual

interest rates,

similar assets

as collateral,

and the

same aggregate

unpaid

principal amount.

The counterparty

certain agreements may have the right to repledge the collateral by

contract or custom. The Corporation presents such assets separately

the

consolidated

statements

financial

condition

securities

pledged

with

creditors’

rights

repledge.

Repurchase

and

resale

activities may be

transacted under

legally enforceable

master repurchase

agreements that give

the Corporation, in

the event of

default

the

counterparty,

the

right

liquidate

securities

held

and

offset

receivables

and

payables

with

the

same

counterparty.

The

Corporation offsets repurchase

and resale transactions with the same

counterparty in the consolidated statements

of financial condition

where it has such

a legally enforceable

right under a master

netting agreement,

the intention of setoff

is existent, the transactions

have

the same maturity date, and the amounts are determinable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

135

From

time

time,

the

Corporation

modifies

repurchase

agreements

take

advantage

prevailing

interest

rates.

Following

applicable

GAAP guidance,

the

Corporation determines

that

the debt

under

the modified

terms

is substantially

different

from

the

original terms,

the modification

must be accounted

for as an

extinguishment of

debt. The

Corporation considers

modified terms

to be

substantially different

if the present

value of

the cash flows

under the

terms of the

new debt instrument

is at least

% different

from

the

present

value

the

remaining

cash

flows

under

the

terms

the

original

instrument.

The

new

debt

instrument

will be

initially

recorded

at fair

value, and

that amount

will be

used to

determine

the debt

extinguishment

gain or

loss to

be recognized

through

the

consolidated statements

of income

and the

effective rate

of the

new instrument.

If the

Corporation determines

that the

debt under

the

modified

terms is

not

substantially

different,

then

the

new effective

interest

rate

is determined

based on

the

carrying amount

the

original

debt

instrument.

The

Corporation

has

determined

that

none

the

repurchase

agreements

modified

the

past

were

substantially different from the original terms,

and, therefore, these modifications were not accounted for as extinguishments of debt

Income taxes

The Corporation

uses the

asset and

liability method

for the recognition

of deferred

tax assets and

liabilities for

the expected

future

tax

consequences

of events

that have

been

recognized

the Corporation’s

financial

statements

tax returns.

Deferred

income

tax

assets

and

liabilities

are

determined

for

differences

between

the

financial

statement

and

tax

bases

assets

and

liabilities

that

will

result in

taxable or

deductible amounts

in the

future. The

computation is

based on

enacted tax

laws and

rates applicable

to periods

which the temporary

differences are expected

to be recovered or

settled. The effect

on deferred tax assets and

liabilities of a change

tax rates

is recognized

in income

at the

time of

enactment of

such change

in tax

rates. Any

interest or

penalties due

for payment

income taxes are included

in the provision for income

taxes. Valuation

allowances are established, when

necessary, to

reduce deferred

tax assets to the

amount that is more

likely than not to

be realized. In making

such assessment, significant

weight is given to

evidence

that can

be objectively

verified, including

both positive

and negative

evidence. The

authoritative guidance

for accounting

for income

taxes requires the consideration of all sources of taxable income

available to realize the deferred tax asset, including the future

reversal

existing

temporary

differences,

tax

planning

strategies

and

future

taxable

income,

exclusive

the

impact

the

reversal

temporary differences and

carryforwards. In estimating

taxes, management assesses the

relative merits and risks

of the appropriate tax

treatment

transactions

considering

statutory,

judicial,

and

regulatory

guidance.

The Corporation

releases

income

tax effects

from

OCL

pension

and

postretirement

liabilities

are

extinguished.

Discounts

purchased

income

tax

credits

are

recognized

non-

interest income when realized. See Note 22 – “Income Taxes

”

for additional information.

Under

the authoritative

accounting guidance,

income tax

benefits are

recognized and

measured based

on a

two-step analysis:

i) a

tax

position

must

likely than

not

to be

sustained

based solely

its technical

merits

order

be recognized;

and

ii)

the

benefit

measured

the

largest

dollar

amount

that

position

that

likely

than

not

sustained

upon

settlement.

The

difference between

a benefit not

recognized in

accordance with

this analysis

and the

tax benefit

claimed on

a tax return

is referred

as an unrecognized tax benefit.

Stock repurchases

Treasury

are

recorded

their

reacquisition

cost,

reduction

stockholders’

equity

the

consolidated

statements

financial condition. When

reissuing treasury shares

for the granting

of stock-based compensation

awards, treasury stock

is reduced by

the

cost

allocated

such

stock

and

additional

paid-in

capital

credited

for

gains

and

debited

for

losses

when

treasury

stock

reissued at prices that differ from the reacquisition cost.

Stock-based compensation

Compensation

cost

recognized

the

financial

statements

for

all

share-based

payment

grants.

The

First

BanCorp.

Omnibus

Incentive

Plan,

amended

(the

“Omnibus

Plan”)

provides

for

equity-based

and

non-equity-based

compensation

incentives

(the

“awards”)

through

the

grant

stock

options,

stock

appreciation

rights,

restricted

stock,

restricted

stock

units,

performance

shares,

other stock-based

awards and

cash-based awards.

The compensation

cost for

an award,

determined

based on

the estimate

of the

fair

value

the

grant

date

(considering

forfeitures

and

any

post-vesting

restrictions),

recognized

over

the

period

during

which

employee

or director

is required

provide

services

exchange

for

award,

which

is the

vesting

period,

taking

into account

the

retirement eligibility of the award.

Stock-based compensation

accounting guidance

requires the

Corporation to

reverse compensation

expense for

any awards

that are

forfeited due

to employee

or director

turnover.

Changes in

the estimated

forfeiture rate

may have

a significant

effect on

stock-based

compensation

the

Corporation

recognizes

the

effect

adjusting

the

rate

for

all

expense

amortization

the

period

which

the

forfeiture estimate is changed. If the actual forfeiture

rate is higher than the estimated forfeiture rate, an adjustment

is made to increase

the

estimated

forfeiture

rate,

which

will

decrease

the

expense

recognized

the

financial

statements.

the

actual

forfeiture

rate

lower

than

the

estimated

forfeiture

rate,

adjustment

made

decrease

the

estimated

forfeiture

rate,

which

will

increase

the

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

136

expense recognized in the financial

statements. For additional information regarding

the Corporation’s

equity-based compensation and

awards granted, see Note 16– “Stock-Based Compensation.”

Comprehensive income (loss)

Comprehensive income

(loss) for First

BanCorp. includes

net income,

as well as

changes

in unrealized

gains (losses) on

available-

for-sale debt securities and change in unrecognized

pension and post-retirement costs, net of estimated tax effects.

Pension and other postretirement benefits

The Corporation

maintains two

frozen qualified

noncontributory defined

benefit pension

plans (the

“Pension Plans”)

(including a

complementary postretirement

benefits plan covering medical benefits

and life insurance after retirement)

that it assumed in the BSPR

acquisition.

Pension costs are computed

on the basis of

accepted actuarial methods

and are charged

to current operations.

Net pension costs are

based on

various actuarial

assumptions regarding

future experience

under the

plan, which

include costs

for services

rendered

during

the

period,

interest

costs

and

return

plan

assets,

well

deferral

and

amortization

certain

items

such

actuarial

gains

losses.

The funding

policy is to

contribute to

the plan,

as necessary,

to provide

for services

to date and

for those expected

to be earned

the future. To

the extent that these

requirements are fully

covered by assets in

the plan, a contribution

may not be made

in a particular

year.

The

cost

postretirement

benefits,

which

is determined

based on

actuarial

assumptions

and

estimates

the

costs of

providing

these benefits in the future, is accrued during the years that the employee renders

the required service.

The

guidance

for

compensation

retirement

benefits

ASC

Topic

715,

“Retirement

Benefits,”

requires

the

recognition

the

funded status of

each defined pension

benefit plan, retiree

health care plan

and other postretirement

benefit plans on

the statements

financial condition.

In addition,

the Corporation

maintains contributory

retirement plans

covering substantially

all employees.

Employer contributions

to the plan are charged

to current earnings as part of

employees’ compensation and benefits expenses

in the consolidated statements of

income.

Segment information

The Corporation reports financial and

descriptive information about its reportable

segments. Operating segments are components

enterprise

about

which

separate

financial

information

is available

that

is evaluated

regularly

the

Chief

Executive

Officer

and

management in

deciding how to

allocate resources

and in assessing

performance. The

Corporation’s

management determined

that the

segregation

that

best

fulfills

the

segment

definition

described

above

lines

business

for

its

operations

Puerto

Rico,

the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

December

31,

2023,

the

Corporation had the following

six

operating segments that are

all reportable segments: Commercial

and Corporate Banking; Mortgage

Banking;

Consumer

(Retail)

Banking;

Treasury

and

Investments;

United

States

Operations;

and

Virgin

Islands

Operations.

The

accounting policies

for the

reportable business

segments are

the same

as those

used in

the preparation

of the

Consolidated Financial

Statements with respect

to activities specifically

attributable to each

business segment.

However, management

methodologies utilized

compiling

segment

financial

information

are

highly

subjective

and,

unlike

financial

accounting,

are

not

based

authoritative

guidance similar

to GAAP.

As a

result, reported

segment results are

not necessarily

comparable with

similar information

reported by

other financial institutions. See Note 27 – “Segment Information” for additional

information.

Valuation

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

operations.

The Corporation

holds debt

and equity

securities, derivatives,

and other

financial instruments

at fair

value. The

Corporation holds

its

investments and liabilities

mainly to manage liquidity

needs and interest

rate risks. A meaningful

part of the Corporation’s

total assets

is reflected at fair value on the Corporation’s

financial statements.

The FASB’s

authoritative guidance

for fair

value measurement

defines fair

value as

the exchange

price that

would be

received for

an asset or paid to

transfer a liability (an

exit price) in the principal

or most advantageous market

for the asset or liability

in an orderly

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

137

transaction between

market participants on

the measurement date.

This guidance also

establishes a fair

value hierarchy for

classifying

financial

instruments.

The

hierarchy

based

whether

the

inputs

the

valuation

techniques

used

measure

fair

value

are

observable or unobservable.

Under the

fair value

accounting guidance,

an entity

has the

irrevocable option

to elect,

on a

contract-by-contract

basis, to measure

certain financial assets and

liabilities at fair value

at the inception of

the contract and, thereafter,

to reflect any changes

in fair value in

current earnings.

The Corporation

did not

make any fair

value option

election as of

December 31, 2023

or 2022. See

Note 25 –

“Fair

Value”

for additional information.

Revenue from contract with customers

See Note 26 –

“Revenue from Contracts with

Customers”

for a detailed description

of the Corporation’s

policies on the recognition

and presentation

of revenues from

contracts with customers,

including the

income recognition for

the insurance agency

commissions’

revenue.

Earnings per common share

Basic earnings per share

is calculated by dividing net

income attributable to common stockholders

by the weighted-average number

common

issued

and outstanding.

Net

income

attributable

common

stockholders

represents

net

income

adjusted

for

any

preferred

stock

dividends,

any,

including

any

preferred

stock

dividends

declared

but

not

yet

paid,

and

any

cumulative

preferred

stock dividends

related to the

current dividend period

that have not

been declared as

of the end

of the period.

Basic weighted-average

common

outstanding

excludes

unvested

restricted

stock

that

not

contain

non-forfeitable

dividend

rights.

The

computation of diluted earnings per share is similar to the computation

of basic earnings per share except that the number of weighted-

average

common

increased

include

the

number

additional

common

that

would

have

been

outstanding

the

dilutive common shares had been issued, referred to as potential common shares.

Potential dilutive

common shares

consist of

unvested shares

of restricted

stock that

do not

contain non-forfeitable

dividend rights,

warrants

outstanding

during

the

period,

and

common

stock

issued

under

the

assumed

exercise

stock

options,

any,

using

the

treasury

stock method.

This method

assumes that

the potential

dilutive

common

shares are

issued and

outstanding

and the

proceeds

from the exercise, in addition to the amount

of compensation cost attributable to future services, are used

to purchase common stock at

the

exercise

date.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock, stock options, and

warrants outstanding during the

period, if any,

that result in lower potential

dilutive shares issued than

purchased

under

the

treasury

stock

method

are

not

included

the

computation

dilutive

earnings

per

since

their

inclusion

would have

an antidilutive

effect on

earnings per

share. Potential

dilutive common

shares also

include performance

units that

do not

contain non-forfeitable dividend rights if the performance condition

is met as of the end of the reporting period.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

138

Adoption of New Accounting Requirements

Standard

Description

Effective Date

Effect on the financial statements

ASU 2022-02 – Financial

Instruments – Credit Losses

(Topic 326): Troubled Debt

Restructurings and Vintage

Disclosures, Issued March

2022

The amendments in this update eliminate

TDR accounting while enhancing disclosure

requirements for certain loan modifications

when a borrower is experiencing financial

difficulty.

The ASU also requires disclosure

of current period gross charge-offs by year of

origination for financing receivables and net

investment in leases.

Management adopted the guidance

during the first quarter of 2023.

The ASU has been applied

prospectively, except for the portion

of the standard related to the

recognition and measurement of

TDRs where we elected to use a

modified retrospective transition

method. The adoption resulted in a

net increase to the ACL of $

2.1

million and a decrease to retained

earnings of $

1.3

million, after tax,

predominantly driven by residential

mortgage loans. Modifications that

do not impact the contractual

payment terms, such as covenant

waivers, insignificant payment

deferrals, and any modifications

made to loans held-for-sale and

leases are not included in the

disclosures. TDRs disclosures are

presented for comparative periods

only.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

139

Recently Issued Accounting Standards Not Yet

Effective or Not Yet

Adopted

Standard

Description

Effective Date

Effect on the financial statements

ASU 2023-09 - Income

Taxes (Topic

740):

Improvements to Income

Tax Disclosures, Issued

December 2023

In December 2023, the FASB issued ASU

2023-09 to improve the annual income tax

disclosures to, among other things, require

disclosure of the following: eight prescribed

categories in the tabular rate reconciliation

(using both percentages and dollar amounts)

with certain reconciling items at or above 5%

further broken out by nature and/or

jurisdiction; income taxes paid (net of refunds

received) disaggregated by federal, state, and

foreign taxes; the amount of income taxes

paid (net of refunds received) disaggregated

by individual jurisdictions in which income

taxes paid (net of refunds received) is equal to

or greater than 5% of total income taxes paid

(net of refunds received); income or loss from

continuing operations before income tax

expense or benefit disaggregated between

domestic and foreign; and income tax expense

or benefit from continuing operations

disaggregated by federal, state, and foreign.

Effective for fiscal years ending

on December 31, 2025. Early

adoption is permitted for annual

financial statements not yet issued.

The amendments in this ASU

should be applied on a prospective

basis. Retrospective application is

permitted.

The Corporation will be impacted by

the standard and will disclose

required information by the adoption

date.

ASU 2023-07 - Segment

Reporting (Topic 280):

Improvements to Reportable

Segment Disclosure, Issued

November 2023

In November 2023, the FASB issued ASU

2023-07 to improve the disclosures about a

public entity’s reportable segments. Among

other things, the amendments in this ASU

require disclosure on an interim and annual

basis of the following: significant segment

expenses that are regularly provided to the

chief operating decision maker (“CODM”)

and included within each reported measure of

segment profit or loss; and an amount for

other segment items (to reconcile segment

revenues less significant expenses to the

reported measure(s) of a segment’s profit or

loss) by reportable segment and a description

of its composition. This ASU also requires

disclosure on an annual basis of the title and

position of the CODM and an explanation of

how the CODM uses the reported measure(s)

of segment profit or loss in assessing segment

performance and deciding how to allocate

resources. In addition, this ASU requires

interim disclosure of segment-related

disclosures that were previously only required

on an annual basis and permits disclosure of

multiple measures of segment profit or loss,

provided that disclosure of the measure that is

closest to GAAP is also provided and certain

other criteria are met.

Effective for fiscal years ending

on December 31, 2024 and interim

periods beginning on January 1,

2025. Early adoption is permitted.

The amendments in this ASU

apply retrospectively to all periods

presented in the financial

statements, unless impracticable to

do so.

The Corporation will be impacted by

the standard and will disclose

required information by the adoption

date.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

140

The Corporation does not expect to be impacted by the following ASUs

issued during 2023 that are not yet effective

or have not yet been

adopted:

●

ASU 2023-08, “Goodwill and

Other – Crypto Assets (Subtopic 350-60): Accounting for and

Disclosure of Crypto Assets”

●

ASU

2023-06,

“Disclosure

Improvements:

Codification

Amendments

Response

the

SEC’s

Disclosure

Update

and

Simplification Initiative”

●

ASU 2023-05, “Business Combinations – Joint Venture

Formations (Subtopic 805-60): Recognition and Initial Measurement”

●

ASU

2023-02,

“Investments

–

Equity

Method

and

Joint

Ventures

(Topic

323):

Accounting

for

Investments

Tax

Credit

Structures Using the Proportional Amortization Method”

●

ASU 2023-01,

“Leases

(Topic 842): Common

Control

Arrangements”

●

ASU

2022-03, “Fair

Value

Measurement

(Topic

820):

Fair Value

Measurement of

Equity

Securities

Subject

Contractual

Sale Restrictions”

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

141

NOTE 2 – MONEY MARKET

INVESTMENTS

Money market investments are composed of time deposits,

overnight deposits with other financial institutions,

and other short-term

investments with original maturities of three months or less.

Money market investments were as follows as of the indicated dates:

As of December 31,

2023

2022

(Dollars in thousands)

Time deposits with other financial institutions

(1)

300

Overnight deposits with other financial institutions

(2)

439

541

Other short-term investments

(3)

500

1,184

1,239

2,025

(1)

Consists of time deposits segregated for compliance with the Puerto

Rico International Banking Law.

Interest rate of

1.05

% and

0.40

% as of December 31, 2023 and 2022, respectively.

(2)

Weighted-average interest rate

5.33

% and

4.33

% as of December 31, 2023 and 2022, respectively.

(3)

Weighted-average interest rate

2.47

% and

0.14

% as of December 31, 2023 and 2022, respectively.

December

31,

2023,

the

Corporation

had

0.4

million

(2022

0.5

million)

money

market

investments

pledged

collateral as part of margin calls associated to derivative contracts.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

142

NOTE 3 – DEBT SECURITIES

Available-for-Sale

Debt Securities

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

available-for-sale

debt securities by contractual maturities as of December 31, 2023

and December 31, 2022 were as follows:

December 31, 2023

Amortized cost

(1)

Gross

ACL

Fair value

(2)

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

80,314

2,144

78,170

0.66

After 1 to 5 years

60,239

3,016

57,223

0.75

U.S. GSEs obligations:

Due within one year

542,847

15,832

527,015

0.77

After 1 to 5 years

1,899,620

135,347

1,764,322

0.86

After 5 to 10 years

8,850

687

8,163

2.64

After 10 years

8,891

8,897

5.49

Puerto Rico government obligations:

After 10 years

(3)

3,156

1,346

395

1,415

United States and Puerto Rico government obligations

2,603,917

158,374

395

2,445,205

0.85

MBS:

Residential MBS:

FHLMC certificates:

After 1 to 5 years

19,561

868

18,693

2.06

After 5 to 10 years

153,308

12,721

140,587

1.55

After 10 years

991,060

161,197

829,878

1.41

1,163,929

174,786

989,158

1.44

GNMA certificates:

Due within one year

254

251

3.27

After 1 to 5 years

16,882

872

16,010

1.19

After 5 to 10 years

27,916

2,247

25,677

1.62

After 10 years

206,254

22,786

183,555

2.57

251,306

25,908

225,493

2.38

FNMA certificates:

After 1 to 5 years

32,489

1,423

31,066

2.11

After 5 to 10 years

293,492

23,146

270,346

1.70

After 10 years

1,047,298

156,344

891,037

1.37

1,373,279

180,913

1,192,449

1.46

Collateralized mortgage obligations (“CMOs”) issued

or guaranteed by the FHLMC, FNMA, and GNMA:

After 10 years

273,539

52,263

221,276

1.54

Private label:

After 10 years

7,086

2,185

116

4,785

7.66

Total Residential MBS

3,069,139

193

436,055

116

2,633,161

1.55

Commercial MBS:

After 1 to 5 years

45,022

6,898

38,124

2.17

After 5 to 10 years

22,386

2,685

19,701

2.16

After 10 years

122,830

29,037

93,793

1.36

Total Commercial MBS

190,238

38,620

151,618

1.64

Total MBS

3,259,377

193

474,675

116

2,784,779

1.55

Total available-for-sale debt securities

5,863,294

250

633,049

511

5,229,984

1.24

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

10.6

million as of December 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

477.9

million (amortized cost - $

527.2

million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $

2.8

billion (amortized cost - $

3.2

billion) pledged as collateral for the

uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual status

based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

143

December 31, 2022

Amortized cost

(1)

Gross

ACL

Fair value

(2)

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

7,493

309

7,184

0.22

After 1 to 5 years

141,366

9,675

131,691

0.70

U.S. GSEs’ obligations:

Due within one year

129,018

4,036

124,982

0.32

After 1 to 5 years

2,395,273

227,724

2,167,571

0.83

After 5 to 10 years

56,251

7,670

48,594

1.54

After 10 years

12,170

12,206

4.62

Puerto Rico government obligations:

After 10 years

(3)

3,331

755

375

2,201

United States and Puerto Rico government obligations

2,744,902

250,169

375

2,494,429

0.83

MBS:

Residential MBS:

FHLMC certificates:

After 1 to 5 years

4,235

169

4,066

2.33

After 5 to 10 years

201,072

18,709

182,363

1.55

After 10 years

1,092,289

186,558

905,731

1.38

1,297,596

205,436

1,092,160

1.41

GNMA certificates:

Due within one year

1.73

After 1 to 5 years

15,508

622

14,886

2.00

After 5 to 10 years

45,322

3,809

41,514

1.31

After 10 years

232,632

27,169

205,514

2.47

293,467

31,600

261,919

2.27

FNMA certificates:

After 1 to 5 years

9,685

521

9,164

1.76

After 5 to 10 years

358,346

31,620

326,726

1.68

After 10 years

1,186,635

124

186,757

1,000,002

1.38

1,554,666

124

218,898

1,335,892

1.45

CMOs issued or guaranteed by the FHLMC, FNMA,

and GNMA:

After 10 years

302,232

56,539

245,693

1.44

Private label:

After 10 years

7,903

2,026

5,794

6.83

Total Residential MBS

3,455,864

176

514,499

2,941,458

1.52

Commercial MBS:

After 1 to 5 years

30,578

4,463

26,115

2.43

After 5 to 10 years

44,889

5,603

39,286

1.89

After 10 years

121,464

23,732

97,732

1.23

Total Commercial MBS

196,931

33,798

163,133

1.56

Total MBS

3,652,795

176

548,297

3,104,591

1.52

Other

Due within one year

500

0.84

Total available-for-sale debt securities

6,398,197

247

798,466

458

5,599,520

1.22

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

11.1

million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

250.6

million (amortized cost - $

286.5

million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $

2.4

billion (amortized cost - $

2.8

billion) pledged as collateral for the

uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

144

Maturities

available-for-sale

debt

securities

are

based

the

period

final

contractual

maturity.

Expected

maturities

might

differ

from

contractual

maturities

because

they

may

subject

prepayments

and/or

call

options.

The

weighted-average

yield

available-for-sale

debt

securities

based

amortized

cost

and,

therefore,

does

not

give

effect

changes

fair

value.

The

net

unrealized loss

on available-for-sale

debt securities

is presented

as part

of accumulated

other comprehensive

loss in

the consolidated

statements of financial condition.

The

following

tables

present

the

fair

value

and

gross

unrealized

losses

the

Corporation’s

available-for-sale

debt

securities,

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

of December 31, 2023 and 2022. The tables also include debt securities for

which an ACL was recorded.

As of December 31, 2023

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

2,544

2,428,784

157,026

2,431,328

157,028

Puerto Rico government obligations

1,415

1,346

(1)

1,415

1,346

MBS:

Residential MBS:

FHLMC

988,092

174,786

988,101

174,786

GNMA

12,257

100

202,390

25,808

214,647

25,908

FNMA

1,183,275

180,913

1,183,275

180,913

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

221,276

52,263

221,276

52,263

Private label

4,785

2,185

(1)

4,785

2,185

Commercial MBS

11,370

140,248

38,602

151,618

38,620

26,180

120

5,170,265

632,929

5,196,445

633,049

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2023, the

PRHFA bond and private label MBS

had an ACL of $

0.4

million

and $

0.1

million, respectively.

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

298,313

18,057

2,174,724

231,357

2,473,037

249,414

Puerto Rico government obligations

2,201

755

(1)

2,201

755

MBS:

Residential MBS:

FHLMC

260,524

45,424

831,637

160,012

1,092,161

205,436

GNMA

74,829

3,433

179,854

28,167

254,683

31,600

FNMA

405,977

49,479

920,200

169,419

1,326,177

218,898

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

45,370

6,735

200,323

49,804

245,693

56,539

Private label

5,794

2,026

(1)

5,794

2,026

Commercial MBS

30,179

2,215

132,953

31,583

163,132

33,798

1,115,192

125,343

4,447,686

673,123

5,562,878

798,466

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2022, the

PRHFA bond and private label MBS

had an ACL of $

0.4

million

and $

0.1

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

145

Assessment for Credit Losses

Debt securities

issued by

U.S. government

agencies,

U.S. GSEs,

and

the U.S.

Treasury,

including

notes and

MBS, accounted

for

substantially all of the total available-for

-sale portfolio as of December 31, 2023, and

the Corporation expects no credit losses on

these

securities,

given

the

explicit

and

implicit

guarantees

provided

the

U.S.

federal

government.

Because

the

decline

fair

value

attributable to changes in interest

rates, and not credit quality,

and because, as of December 31,

2023, the Corporation did not have

the

intent to

sell these

U.S. government

and agencies

debt securities

and determined

that it

was likely

that it

will not

be required

to sell

these

securities

before

their

anticipated

recovery,

the

Corporation

does

not

consider

impairments

these

securities

credit

related. The Corporation’s

credit loss assessment was

concentrated mainly on

private label MBS and

on Puerto Rico government

debt

securities, for which credit losses are evaluated on a quarterly basis.

Private label MBS

held as part

of the Corporation’s

available for sale

portfolio consist of

trust certificates issued

by an unaffiliated

party

backed

fixed-rate,

single-family

residential

mortgage

loans

the

U.S.

mainland

with

original

FICO

scores

over

700

and

moderate

loan-to-value

ratios (under

%), as

well

as moderate

delinquency

levels.

The interest

rate

these

private label

MBS is

variable, tied

to 3-month

CME Term

Secured Overnight

Financing Rate

(“SOFR”) plus

a tenor

spread adjustment

0.26161

% and

the

original

spread

limited

the

weighted-average

coupon

the

underlying

collateral.

The

Corporation

determined

the

ACL

for

private

label

MBS

based

risk-adjusted

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

the

instruments.

The Corporation

utilized PDs

and LGDs

that considered,

among other

things, historical

payment performance,

loan-to-

value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables,

such

regional

unemployment

rates

and

the

housing

price

index.

Under

this

approach,

expected

cash

flows

(interest

and

principal)

were

discounted

the

U.S.

Treasury

yield

curve

as of

the reporting

date. See

Note 25

– “Fair

Value

”

for

the significant

assumptions used

in the

valuation

of the

private

label

MBS as of December 31, 2023 and 2022.

For the residential

pass-through MBS issued by

the PRHFA

held as part of

the Corporation’s

available-for-sale portfolio

backed by

second

mortgage

residential

loans

Puerto

Rico,

the

ACL

was

determined

based

discounted

cash

flow

methodology

that

considered the structure and

terms of the debt security.

The expected cash flows were

discounted at the U.S. Treasury

yield curve plus

a spread as of

the reporting date and

compared to the

amortized cost. The

Corporation utilized PDs and

LGDs that considered,

among

other

things,

historical

payment

performance,

loan-to-value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables, such as

regional unemployment

rates, the housing

price index,

and expected recovery

from the PRHFA

guarantee. PRHFA,

not the

Puerto Rico

government, provides

a guarantee

in the event

of default

and subsequent

foreclosure of

the properties underlying

the

second

mortgage

loans.

the

event

that

the

second

mortgage

loans

default

and

the

collateral

insufficient

satisfy

the

outstanding

balance

this

residential

pass-through

MBS,

PRHFA’s

ability

honor

such

guarantee

will

depend

on,

among

other

factors,

its

financial

condition

the

time

such

obligation

becomes

due

and

payable.

Deterioration

the

Puerto

Rico

economy

fiscal health of the PRHFA

could impact the value of this security,

resulting in additional losses to the Corporation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

146

The

following

tables

present

roll-forward

the

ACL on

available-for-sale

debt

securities by

major

security

type

for

the

years

ended December 31, 2023, 2022 and 2021:

Year

Ended December 31, 2023

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

375

458

Provision for credit losses - expense

Net recoveries

ACL on available-for-sale debt securities

116

395

511

Year

Ended December 31, 2022

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

797

308

1,105

Provision for credit losses - (benefit) expense

(501)

(434)

Net charge-offs

(213)

ACL on available-for-sale debt securities

375

458

Year

Ended December 31, 2021

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

1,002

308

1,310

Provision for credit losses - benefit

(136)

Net charge-offs

(69)

ACL on available-for-sale debt securities

797

308

1,105

During

2023,

the

Corporation

recognized

78.3

million

interest

income

available-for-sale

debt

securities

(2022

86.1

million; 2021 - $

62.7

million), of which $

39.1

million was exempt (2022 - $

40.7

million; 2021 - $

25.7

million). The exempt securities

primarily relate to MBS and

government obligations held by

IBEs (as defined in the

International Banking Entity

Act of Puerto Rico),

whose interest income and sales are exempt from Puerto Rico income

taxation under that act.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

147

Held-to-Maturity Debt Securities

The

amortized

cost,

gross

unrecognized

gains

and

losses,

estimated

fair

value,

ACL,

weighted-average

yield

and

contractual

maturities of held-to-maturity debt securities as of December 31,

2023 and 2022 were as follows:

December 31, 2023

Amortized cost

(1) (2)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

3,165

3,135

9.30

After 1 to 5 years

51,230

994

710

51,514

1,266

7.78

After 5 to 10 years

36,050

3,540

210

39,380

604

7.13

After 10 years

16,595

269

16,864

277

8.87

Total Puerto Rico municipal bonds

107,040

4,811

958

110,893

2,197

7.78

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

16,469

556

15,913

3.03

After 10 years

18,324

714

17,610

4.32

34,793

1,270

33,523

3.71

GNMA certificates:

After 10 years

16,265

789

15,476

3.32

FNMA certificates:

After 10 years

67,271

2,486

64,785

4.18

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

After 10 years

28,139

1,274

26,865

3.49

Total Residential MBS

146,468

5,819

140,649

3.84

Commercial MBS:

After 1 to 5 years

9,444

297

9,147

3.48

After 10 years

91,226

5,783

85,443

3.15

Total Commercial MBS

100,670

6,080

94,590

3.18

Total MBS

247,138

11,899

235,239

3.57

Total held-to-maturity debt securities

354,178

4,811

12,857

346,132

2,197

4.84

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

4.8

million as of December 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

126.6

million (fair value - $

125.9

million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

148

December 31, 2022

Amortized cost

(1) (2)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

1,202

1,187

5.20

After 1 to 5 years

42,530

886

1,076

42,340

656

6.34

After 5 to 10 years

55,956

3,182

360

58,778

3,243

6.29

After 10 years

66,022

1,318

64,704

4,385

7.10

Total held-to-maturity debt securities

165,710

4,068

2,769

167,009

8,286

6.62

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

21,443

746

20,697

3.03

After 10 years

19,362

888

18,474

4.21

40,805

1,634

39,171

3.59

GNMA certificates:

After 10 years

19,131

943

18,188

3.35

FNMA certificates:

After 10 years

72,347

3,155

69,192

4.14

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

After 10 years

34,456

1,424

33,032

3.49

Total Residential MBS

166,739

7,156

159,583

3.78

Commercial MBS:

After 1 to 5 years

9,621

396

9,225

3.48

After 10 years

95,467

4,169

91,298

3.15

Total Commercial MBS

105,088

4,565

100,523

3.18

Total MBS

271,827

11,721

260,106

3.55

Total held-to-maturity debt securities

437,537

4,068

14,490

427,115

8,286

4.71

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

5.5

million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

190.1

million (fair value - $

189.4

million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

149

During

2023,

there

were

purchases

debt

securities

classified

held-to-maturity.

During

2022,

the

Corporation

purchased

approximately $

289.9

million of GSEs’ MBS, which were classified as held-to-maturity debt securities.

The

following

tables

present

the

Corporation’s

held-to-maturity

debt

securities’

fair

value

and

gross

unrecognized

losses,

aggregated

category

and

length

time

that

individual

securities

had

been

continuous

unrecognized

loss

position,

December 31, 2023 and 2022, including debt securities for which an ACL was recorded:

As of December 31, 2023

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

34,682

958

34,682

958

MBS:

Residential MBS:

FHLMC certificates

33,523

1,270

33,523

1,270

GNMA certificates

15,476

789

15,476

789

FNMA certificates

64,785

2,486

64,785

2,486

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

26,865

1,274

26,865

1,274

Commercial MBS

94,590

6,080

94,590

6,080

Total held-to-maturity debt securities

269,921

12,857

269,921

12,857

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

98,797

2,769

98,797

2,769

MBS:

Residential MBS:

FHLMC certificates

39,171

1,634

39,171

1,634

GNMA certificates

18,188

943

18,188

943

FNMA certificates

69,192

3,155

69,192

3,155

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

33,032

1,424

33,032

1,424

Commercial MBS

100,523

4,565

100,523

4,565

Total held-to-maturity debt securities

260,106

11,721

98,797

2,769

358,903

14,490

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

150

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

GSEs and

Puerto Rico

municipal bonds.

The Corporation

does not

recognize an

ACL for MBS

issued by

GSEs since

they are

highly

rated by major rating agencies

and have a long history

of no credit losses. In the

case of Puerto Rico municipal bonds,

the Corporation

determines

the

ACL

based

the

product

cumulative

and

LGD,

and

the

amortized

cost

basis

the

bonds

over

their

remaining expected life as described in Note 1 – “Nature of Business and Summary

of Significant Accounting Policies.”

The Corporation

performs periodic

credit quality

reviews on

these issuers.

All of

the Puerto

Rico municipal

bonds were

current as

scheduled

contractual

payments

December

31,

2023.

The

ACL

Puerto

Rico

municipal

bonds

decreased

2.2

million

December

31, 2023,

from $

8.3

million as

of December

31, 2022,

mostly driven

by the refinancing of a $

46.5

million municipal bond into

shorter-term

commercial

loan

structure

and,

lesser

extent,

reduction

qualitative

reserves

driven

updated

financial

information of certain bond issuers received during 2023.

The following tables

present the activity

in the ACL for

held-to-maturity debt

securities by major

security type for

the years ended

December 31, 2023, 2022 and 2021:

Puerto Rico Municipal Bonds

Year

Ended December 31,

2023

2022

2021

(In thousands)

Beginning Balance

8,286

8,571

8,845

Provision for credit losses - benefit

(6,089)

(285)

(274)

ACL on held-to-maturity debt securities

2,197

8,286

8,571

During the second quarter of 2019, the oversight board established

by Puerto Rico Oversight, Management, and

Economic Stability

Act

(“PROMESA”)

announced

the

designation

Puerto

Rico’s

municipalities

covered

instrumentalities

under

PROMESA.

Municipalities

may

affected

the

negative

economic

and

other

effects

resulting

from

expense,

revenue,

cash

management

measures taken

by the

Puerto Rico government

to address its

fiscal situation,

or measures

included in

its fiscal

plan or

fiscal plans

other

government

entities. Given

the

inherent

uncertainties

about

the fiscal

situation

of the

Puerto

Rico

central

government

and

the

measures taken, or

to be taken, by

other government entities

in response to

economic and fiscal challenges,

the Corporation cannot

certain whether future charges to the ACL on these securities will be required.

From

time

time,

the

Corporation

has

held-to-maturity

securities

with

original

maturity

three

months

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

money

market

investments

the

consolidated

statements

financial

condition. As of

December 31,

2023 and

2022, the

Corporation had

outstanding held-to-maturity

securities that

were classified

cash and cash equivalents.

During

2023,

the

Corporation

recognized

20.9

million

interest

income

held-to-maturity

debt

securities

(2022

15.5

million; 2021

- $

8.8

million), of

which $

20.5

million was

exempt (2022

- $

15.4

million; 2021

- $

8.8

million). The

exempt securities

relate to tax-exempt Puerto Rico municipal bonds

and MBS held by IBEs (as defined in the International Banking

Entity Act of Puerto

Rico), whose interest income and sales are exempt from Puerto Rico income

taxation under that act.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

151

Credit Quality Indicators:

The held-to-maturity debt securities

portfolio consisted of GSEs’

MBS and financing arrangements

with Puerto Rico municipalities

issued in

bond form.

As previously

mentioned,

the Corporation

expects

no credit

losses on

GSEs MBS.

The Puerto

Rico municipal

bonds

are

accounted

for

securities

but

are

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

Accordingly, the

Corporation monitors the credit quality of these municipal bonds through the use of

internal credit-risk ratings, which

are generally updated

on a quarterly basis.

The Corporation considers

a municipal bond

as a criticized asset

if its risk rating

is Special

Mention,

Substandard,

Doubtful,

Loss.

Puerto

Rico

municipal

bonds

that

not

meet

the

criteria

for

classification

criticized

assets are considered to be Pass-rated securities. The asset categories are

defined below:

Pass –

Assets classified

as Pass

have a

well-defined primary

source of

repayment, with

no apparent

risk, strong

financial position,

minimal operating

risk, profitability,

liquidity and

strong capitalization

and include

assets categorized

as Watch.

Assets classified

Watch

have

acceptable business

credit,

but borrowers’

operations, cash

flow or

financial condition

evidence more

than average

risk

and requires additional level of supervision and attention from loan officers.

Special Mention – Special

Mention assets have potential

weaknesses that deserve management’s

close attention. If left uncorrected,

these potential

weaknesses may

result in

deterioration of

the repayment

prospects for

the asset or

in the

Corporation’s

credit position

at some future date.

Special Mention assets are

not adversely classified and

do not expose the

Corporation to sufficient

risk to warrant

adverse classification.

Substandard – Substandard assets are inadequately protected

by the current sound worth and paying capacity of the obligor

or of the

collateral

pledged,

any.

Assets

classified

Substandard

must

have

well-defined

weakness

weaknesses

that

jeopardize

the

liquidation of

the debt.

They are

characterized by

the distinct

possibility that

the institution

will sustain

some loss

if the

deficiencies

are not corrected.

Doubtful –

Doubtful classifications

have all

the weaknesses

inherent in

those classified

Substandard

with the

added characteristic

that

the

weaknesses

make

collection

liquidation

full

highly

questionable

and

improbable,

based

currently

known

facts,

conditions and

values. A

Doubtful classification

may be

appropriate in

cases where

significant risk

exposures are

perceived, but

loss

cannot be determined because of specific reasonable pending factors,

which may strengthen the credit in the near term.

Loss – Assets classified

as Loss are considered

uncollectible and of

such little value that

their continuance as

bankable assets is not

warranted. This classification does not mean that the asset has absolutely

no recovery or salvage value, but rather that it is not practical

or desirable

to defer

writing off

this asset even

though partial

recovery may

occur in

the future. There

is little or

no prospect

for near

term improvement and no realistic strengthening action of significance

pending.

The

Corporation

periodically

reviews

its Puerto

Rico

municipal

bonds

evaluate

they are

properly

classified,

and to

measure

credit losses on

these securities. The

frequency of these

reviews will depend

on the amount

of the aggregate

outstanding debt, and

the

risk rating classification of the obligor.

The

Corporation

has

Loan

Review

Group

that

reports

directly

the

Corporation’s

Risk

Management

Committee

and

administratively

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities.

The objective

these

loan

reviews is

assess accuracy

of the

Bank’s

determination

and

maintenance

loan

risk

rating

and

its

adherence

lending

policies,

practices

and

procedures.

The

monitoring

performed

this

group

contributes

the

assessment

compliance

with

credit

policies

and

underwriting

standards,

the

determination

the

current

level

credit

risk,

the

evaluation of

the effectiveness

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

a sound credit process. The Loan Review Group reports the results of the credit

process reviews to the Risk Management Committee.

As of December 31, 2023 and 2022, all Puerto Rico municipal bonds

classified as held-to-maturity were classified as Pass.

held-to-maturity debt

securities were

on nonaccrual

status, 90

days past

due and

still accruing,

or past

due as

of December

31,

2023 and 2022. A security is considered to be past due once it is 30 days contractually

past due under the terms of the agreement.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

152

NOTE 4 – LOANS HELD FOR INVESTMENT

The

following table

provides information

about

the

loan

portfolio held

for

investment by

portfolio segment

and

disaggregated by

geographic locations

as of the indicated

dates:

As of December 31,

2023

2022

(In thousands)

Puerto Rico and Virgin Islands region:

Residential mortgage loans, mainly secured by first mortgages

2,356,006

2,417,900

Construction loans

115,401

34,772

Commercial mortgage loans

1,790,637

1,834,204

C&I loans

2,249,408

1,860,109

Consumer loans

3,651,770

3,317,489

Loans held for investment

10,163,222

9,464,474

Florida region:

Residential mortgage loans, mainly secured by first mortgages

465,720

429,390

Construction loans

99,376

98,181

Commercial mortgage loans

526,446

524,647

C&I loans

924,824

1,026,154

Consumer loans

5,895

9,979

Loans held for investment

2,022,261

2,088,351

Total:

Residential mortgage loans, mainly secured by first mortgages

2,821,726

2,847,290

Construction loans

214,777

132,953

Commercial mortgage loans

2,317,083

2,358,851

C&I loans

(1)

3,174,232

2,886,263

Consumer loans

3,657,665

3,327,468

Loans held for investment

(2)

12,185,483

11,552,825

ACL on loans and finance leases

(261,843)

(260,464)

Loans held for investment, net

11,923,640

11,292,361

(1)

As of December 31, 2023 and 2022, includes $

787.5

million and $

838.5

million, respectively, of commercial loans that were secured by real estate and for

which

the primary source of repayment at origination was not dependent

upon such real estate.

(2)

Includes accretable fair value net purchase discounts of $

24.7

million and $

29.3

million as of December 31, 2023 and 2022, respectively.

December 31,

2023,

and

2022,

the

Corporation

had

net

deferred

origination

costs

its

loan

portfolio

amounting

6.1

million and

11.2

million, respectively.

The total loan

portfolio is

net of unearned

income of $

132.6

million and

103.4

million as

December 31, 2023 and 2022, respectively,

of which $

128.0

million and $

99.2

million are related to finance leases as of December 31,

2023 and 2022, respectively.

As of

December 31,

2023,

the Corporation

was servicing

residential

mortgage

loans owned

by others

in an

aggregate

amount

3.8

billion (2022

— $

3.9

billion), and

commercial loan

participations owned

by others

in an

aggregate amount

of $

230.5

million as

of December 31, 2023 (2022 — $

305.1

million).

Various

loans

were

assigned

collateral

for

borrowings,

government

deposits,

time

deposits

accounts,

and

unused

commitments.

The carrying

value of

loans pledged

as collateral

amounted

to $

4.6

billion and

4.3

billion

as of

December 31,

2023

and 2022, respectively.

As of each of

December 31, 2023

and 2022, loans

pledged as collateral

include $

1.8

billion that were pledged

at the FHLB as collateral for borrowings and letters of credit; $

2.5

billion that were pledged at the FED Discount Window

as collateral

for borrowings, compared

to $

2.2

billion as of

December 31, 2022;

and $

166.9

million serve as

collateral for the

uninsured portion of

government deposits,

compared to

123.7

million as

of December

31, 2022.

See Note

13 –

“Advances from

the Federal

Home Loan

Bank

(“FHLB”)”

and

Note

–

“Other

Borrowings”

for

information

the

unused

portion

FHLB

advances

and

FED

programs, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

153

The Corporation’s

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL,

portfolio classes as of December 31, 2023 and 2022 are as follows:

As of December 31, 2023

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

68,332

2,592

29,312

100,236

Conventional residential mortgage loans

(2) (6)

2,644,344

33,878

11,029

32,239

2,721,490

1,742

Commercial loans:

Construction loans

210,911

2,297

1,569

214,777

972

Commercial mortgage loans

(2) (6)

2,303,753

1,108

12,205

2,317,083

2,536

C&I loans

3,148,254

1,130

1,143

8,455

15,250

3,174,232

1,687

Consumer loans:

Auto loans

1,846,652

60,283

13,753

15,568

1,936,256

Finance leases

837,881

13,786

1,861

3,287

856,815

Personal loans

370,746

5,873

2,815

1,841

381,275

Credit cards

313,360

5,012

3,589

7,251

329,212

Other consumer loans

147,278

3,084

1,997

1,748

154,107

Total loans held for investment

11,891,511

89,185

61,628

59,452

83,707

12,185,483

6,953

(1)

It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 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 $

15.4

million of residential mortgage

loans guaranteed by the FHA that were over 15 months delinquent as of December 31, 2023.

(2)

Includes purchased credit deteriorated ("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, amounting to $

8.3

million as of

December 31,

2023 ($

7.4

million conventional residential mortgage loans and $

0.9

million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

7.9

million as of December 31, 2023. 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, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

million as of December 31, 2023, primarily nonaccrual residential mortgage loans and C&I loans.

(5)

There were

nonaccrual loans with no ACL in the Florida region as of December 31, 2023.

(6)

According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required

by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2023 amounted to $

8.2

million, $

69.9

million, $

1.1

million,

respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

154

As of December 31, 2022

Days Past Due and Accruing

Current

30-59

60-89

90+

(1)(2)(3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

67,116

2,586

48,456

118,158

Conventional residential mortgage loans

(2) (6)

2,643,909

25,630

16,821

42,772

2,729,132

2,292

Commercial loans:

Construction loans

130,617

128

2,208

132,953

977

Commercial mortgage loans

(2) (6)

2,330,094

300

2,367

3,771

22,319

2,358,851

15,991

C&I loans

2,868,989

1,984

1,128

6,332

7,830

2,886,263

3,300

Consumer loans:

Auto loans

1,740,271

40,039

7,089

10,672

1,798,071

2,136

Finance leases

707,646

7,148

1,791

1,645

718,230

330

Personal loans

346,366

3,738

1,894

1,248

353,246

Credit cards

301,013

3,705

2,238

4,775

311,731

Other consumer loans

141,687

1,804

1,458

1,241

146,190

Total loans held for investment

11,277,708

58,718

46,181

80,283

89,935

11,552,825

25,026

(1)

It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 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 $

28.2

million of residential mortgage loans

guaranteed by the FHA that were over 15 months delinquent as of December 31, 2022.

(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, amounting to $

12.0

million as of December 31, 2022 ($

11.0

million conventional

residential mortgage loans and $

1.0

million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

10.3

million as of December 31, 2022. 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, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.3

million as of December 31, 2022, primarily nonaccrual residential mortgage loans.

(5)

Includes $

0.3

million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.

(6)

According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required

by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2022 amounted to $

6.1

million, $

65.2

million, and $

1.6

million,

respectively.

When

loan

is placed

nonaccrual

status,

any

accrued

but uncollected

interest

income

is reversed

and

charged

against interest

income

and the

amortization of

any net

deferred fees

is suspended.

The amount

of accrued

interest reversed

against interest

income

totaled

2.7

million,

1.7

million,

and

2.0

million

for

the

years

ended

December

31,

2023,

2022,

and

2021,

respectively.

For

the

years ended

December 31,

2023, 2022,

and 2021, the

cash interest income

recognized on

nonaccrual loans

amounted to

1.8

million,

1.5

million, and $

2.3

million, respectively.

As of

December 31,

2023, the

recorded investment

on residential

mortgage loans

collateralized by

residential real

estate property

that

were

the

process

foreclosure

amounted

39.4

million,

including

17.1

million

FHA/VA

government-guaranteed

mortgage

loans,

and

5.2

million

PCD

loans

acquired

prior

the

adoption,

January

2020,

CECL.

The

Corporation

commences

the

foreclosure

process

residential

real

estate

loans

when

borrower

becomes

120

days

delinquent.

Foreclosure

procedures

and

timelines

vary

depending

whether

the

property

located

judicial

non-judicial

state.

Occasionally,

foreclosures may be delayed due to, among other reasons, mandatory

mediations, bankruptcy,

court delays, and title issues.

Credit Quality Indicators:

The Corporation

categorizes loans

into risk

categories based

on relevant

information

about the

ability of

the borrowers

to service

their debt

such as

current financial

information, historical

payment experience,

credit documentation,

public information,

and current

economic

trends,

among

other

factors.

The

Corporation

analyzes

non-homogeneous

loans,

such

as commercial

mortgage,

C&I,

and

construction

loans

individually

classify

the

loans’

credit

risk.

mentioned

above,

the

Corporation

periodically

reviews

its

commercial

and

construction

loans

evaluate

they

are

properly

classified.

The

frequency

these

reviews

will

depend

the

amount of

the aggregate

outstanding debt,

and the

risk rating

classification of

the obligor.

In addition,

during the

renewal and

annual

review process of

applicable credit facilities, the

Corporation evaluates the

corresponding loan grades.

The Corporation uses

the same

definition

for

risk

ratings

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities,

discussed in Note 3 – “Debt Securities.”

For residential mortgage and consumer loans, the Corporation evaluates credit

quality based on its interest accrual status.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

155

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and

origination year

based on

the internal

credit-risk category

as of

December 31,

2023 and

2022,

and the

gross charge

-offs for

the year

ended December 31, 2023 by portfolio classes and by origination year,

were as follows:

As of December 31, 2023

Puerto Rico and Virgin Islands Regions

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

52,675

40,825

15,936

3,734

113,170

Criticized:

Special Mention

Substandard

2,231

Doubtful

Loss

Total construction loans

52,675

40,825

15,936

5,965

115,401

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

176,519

381,695

135,163

319,111

276,078

326,420

3,418

1,618,404

Criticized:

Special Mention

4,394

30,169

112,063

146,626

Substandard

124

25,483

25,607

Doubtful

Loss

Total commercial mortgage loans

176,519

386,213

135,163

349,280

276,078

463,966

3,418

1,790,637

Charge-offs on commercial mortgage loans

1,133

C&I

Risk Ratings:

Pass

410,721

298,285

158,636

155,984

249,481

171,586

729,246

2,173,939

Criticized:

Special Mention

542

578

476

2,447

36,333

40,376

Substandard

3,848

599

12,844

16,477

1,324

35,093

Doubtful

Loss

Total C&I loans

411,264

298,285

163,062

156,583

262,801

190,510

766,903

2,249,408

Charge-offs on C&I loans

218

140

358

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

156

As of December 31, 2023

Term Loans

Florida Region

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

995

57,712

38,289

2,380

99,376

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

995

57,712

38,289

2,380

99,376

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

28,814

186,098

63,561

39,844

63,332

119,460

24,344

525,453

Criticized:

Special Mention

Substandard

993

Doubtful

Loss

Total commercial mortgage loans

28,814

186,098

63,561

40,837

63,332

119,460

24,344

526,446

Charge-offs on commercial mortgage loans

C&I

Risk Ratings:

Pass

139,800

237,189

166,998

47,394

109,123

48,106

130,585

879,195

Criticized:

Special Mention

19,485

11,725

10,836

42,046

Substandard

252

191

3,140

3,583

Doubtful

Loss

Total C&I loans

139,800

237,189

186,483

47,646

121,039

62,082

130,585

924,824

Charge-offs on C&I loans

376

6,202

6,578

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

157

As of December 31, 2023

Term Loans

Total

Amortized Cost Basis by Origination Year (1)

2023

2022

2021

2020

2019

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

53,670

98,537

54,225

3,734

2,380

212,546

Criticized:

Special Mention

Substandard

2,231

Doubtful

Loss

Total construction loans

53,670

98,537

54,225

5,965

2,380

214,777

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

205,333

567,793

198,724

358,955

339,410

445,880

27,762

2,143,857

Criticized:

Special Mention

4,394

30,169

112,063

146,626

Substandard

124

993

25,483

26,600

Doubtful

Loss

Total commercial mortgage loans

205,333

572,311

198,724

390,117

339,410

583,426

27,762

2,317,083

Charge-offs on commercial mortgage loans

1,133

C&I

Risk Ratings:

Pass

550,521

535,474

325,634

203,378

358,604

219,692

859,831

3,053,134

Criticized:

Special Mention

542

20,063

12,201

13,283

36,333

82,422

Substandard

3,848

851

13,035

19,617

1,324

38,676

Doubtful

Loss

Total C&I loans

551,064

535,474

349,545

204,229

383,840

252,592

897,488

3,174,232

Charge-offs on C&I loans

376

6,420

140

6,936

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

158

As of December 31,

2022

Puerto Rico and Virgin Islands Regions

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

9,463

18,385

4,031

31,879

Criticized:

Special Mention

Substandard

2,893

Doubtful

Loss

Total construction loans

9,463

18,385

6,924

34,772

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

391,589

141,456

363,115

296,954

193,795

267,793

1,026

1,655,728

Criticized:

Special Mention

1,198

3,583

6,919

12,042

121,673

145,415

Substandard

135

2,819

30,107

33,061

Doubtful

Loss

Total commercial mortgage loans

392,922

141,456

366,698

306,692

205,837

419,573

1,026

1,834,204

C&I

Risk Ratings:

Pass

297,932

195,460

184,856

315,987

88,484

179,201

527,652

1,789,572

Criticized:

Special Mention

138

912

500

9,867

2,631

29,176

43,224

Substandard

203

351

1,324

14,119

725

10,238

353

27,313

Doubtful

Loss

Total C&I loans

298,273

196,723

186,180

330,606

99,076

192,070

557,181

1,860,109

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

159

As of December 31,

2022

Term Loans

Florida Region

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

48,536

42,841

6,790

98,181

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

48,536

42,841

6,790

98,181

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

176,131

70,525

41,413

54,839

71,404

70,316

18,556

503,184

Criticized:

Special Mention

6,986

13,309

20,295

Substandard

1,168

Doubtful

Loss

Total commercial mortgage loans

176,131

70,525

49,567

68,148

71,404

70,316

18,556

524,647

C&I

Risk Ratings:

Pass

277,637

163,210

77,027

223,504

66,484

35,028

136,261

979,151

Criticized:

Special Mention

5,974

11,931

17,905

Substandard

267

24,852

3,678

301

29,098

Doubtful

Loss

Total C&I loans

277,637

163,210

77,294

254,330

66,484

50,637

136,562

1,026,154

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

160

As of December 31,

2022

Term Loans

Total

Amortized Cost Basis by Origination Year (1)

2022

2021

2020

2019

2018

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

57,999

61,226

4,031

6,790

130,060

Criticized:

Special Mention

Substandard

2,893

Doubtful

Loss

Total construction loans

57,999

61,226

6,924

6,790

132,953

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

567,720

211,981

404,528

351,793

265,199

338,109

19,582

2,158,912

Criticized:

Special Mention

1,198

10,569

20,228

12,042

121,673

165,710

Substandard

135

1,168

2,819

30,107

34,229

Doubtful

Loss

Total commercial mortgage loans

569,053

211,981

416,265

374,840

277,241

489,889

19,582

2,358,851

C&I

Risk Ratings:

Pass

575,569

358,670

261,883

539,491

154,968

214,229

663,913

2,768,723

Criticized:

Special Mention

138

912

6,474

9,867

14,562

29,176

61,129

Substandard

203

351

1,591

38,971

725

13,916

654

56,411

Doubtful

Loss

Total C&I loans

575,910

359,933

263,474

584,936

165,560

242,707

693,743

2,886,263

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

161

The following

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

based on

accrual status as of December 31, 2023 and 2022, and the gross charge-offs

for the year ended December 31, 2023 by origination year:

As of December 31, 2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized Cost

Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

378

681

942

525

1,468

95,299

99,293

Non-Performing

Total FHA/VA

government-guaranteed loans

378

681

942

525

1,468

95,299

99,293

Conventional residential mortgage loans

Accrual Status:

Performing

173,086

164,895

69,253

29,558

44,289

1,750,620

2,231,701

Non-Performing

173

24,735

25,012

Total conventional residential mortgage loans

173,086

164,964

69,288

29,558

44,462

1,775,355

2,256,713

Total

Accrual Status:

Performing

173,464

165,576

70,195

30,083

45,757

1,845,919

2,330,994

Non-Performing

173

24,735

25,012

Total residential mortgage loans

173,464

165,645

70,230

30,083

45,930

1,870,654

2,356,006

Charge-offs on residential mortgage loans

3,222

3,239

(1)

Excludes accrued interest receivable.

As of December 31, 2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

943

Non-Performing

Total FHA/VA

government-guaranteed loans

943

Conventional residential mortgage loans

Accrual Status:

Performing

90,018

77,960

45,781

29,166

26,903

187,722

457,550

Non-Performing

257

6,954

7,227

Total conventional residential mortgage loans

90,018

77,976

45,781

29,166

27,160

194,676

464,777

Total

Accrual Status:

Performing

90,018

77,960

45,781

29,166

26,903

188,665

458,493

Non-Performing

257

6,954

7,227

Total residential mortgage loans

90,018

77,976

45,781

29,166

27,160

195,619

465,720

Charge-offs on residential mortgage loans

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

162

As of December 31, 2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

378

681

942

525

1,468

96,242

100,236

Non-Performing

Total FHA/VA

government-guaranteed loans

378

681

942

525

1,468

96,242

100,236

Conventional residential mortgage loans

Accrual Status:

Performing

263,104

242,855

115,034

58,724

71,192

1,938,342

2,689,251

Non-Performing

430

31,689

32,239

Total conventional residential mortgage loans

263,104

242,940

115,069

58,724

71,622

1,970,031

2,721,490

Total

Accrual Status:

Performing

263,482

243,536

115,976

59,249

72,660

2,034,584

2,789,487

Non-Performing

430

31,689

32,239

Total residential mortgage loans

263,482

243,621

116,011

59,249

73,090

2,066,273

2,821,726

Charge-offs on residential mortgage loans

3,228

3,245

(1)

Excludes accrued interest receivable.

As of December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

700

693

802

1,407

3,784

110,030

117,416

Non-Performing

Total FHA/VA

government-guaranteed loans

700

693

802

1,407

3,784

110,030

117,416

Conventional residential mortgage loans

Accrual Status:

Performing

172,628

75,397

31,885

47,911

72,285

1,864,907

2,265,013

Non-Performing

219

279

34,938

35,471

Total conventional residential mortgage loans

172,628

75,432

31,885

48,130

72,564

1,899,845

2,300,484

Total

Accrual Status:

Performing

173,328

76,090

32,687

49,318

76,069

1,974,937

2,382,429

Non-Performing

219

279

34,938

35,471

Total residential mortgage loans

173,328

76,125

32,687

49,537

76,348

2,009,875

2,417,900

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

163

As of December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

742

Non-Performing

Total FHA/VA

government-guaranteed loans

742

Conventional residential mortgage loans

Accrual Status:

Performing

82,968

49,479

31,405

31,144

37,268

189,083

421,347

Non-Performing

272

477

6,552

7,301

Total conventional residential mortgage loans

82,968

49,479

31,405

31,416

37,745

195,635

428,648

Total

Accrual Status:

Performing

82,968

49,479

31,405

31,144

37,268

189,825

422,089

Non-Performing

272

477

6,552

7,301

Total residential mortgage loans

82,968

49,479

31,405

31,416

37,745

196,377

429,390

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

164

As of December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving Loans

Amortized Cost

Basis

Total

(In thousands)

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

700

693

802

1,407

3,784

110,772

118,158

Non-Performing

Total FHA/VA

government-guaranteed loans

700

693

802

1,407

3,784

110,772

118,158

Conventional residential mortgage loans

Accrual Status:

Performing

255,596

124,876

63,290

79,055

109,553

2,053,990

2,686,360

Non-Performing

491

756

41,490

42,772

Total conventional residential mortgage loans

255,596

124,911

63,290

79,546

110,309

2,095,480

2,729,132

Total

Accrual Status:

Performing

256,296

125,569

64,092

80,462

113,337

2,164,762

2,804,518

Non-Performing

491

756

41,490

42,772

Total residential mortgage loans

256,296

125,604

64,092

80,953

114,093

2,206,252

2,847,290

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

165

The

following

tables present

the

amortized

cost

consumer

loans

portfolio

classes

and

by origination

year

based on

accrual

status as of December 31,

2023 and 2022, and

the gross charge-offs

for the year ended

December 31, 2023 by portfolio

classes and by

origination year:

As of December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

Auto loans

Accrual Status:

Performing

630,507

532,854

384,103

178,566

131,913

61,640

1,919,583

Non-Performing

2,474

4,031

3,103

1,426

2,610

1,912

15,556

Total auto loans

632,981

536,885

387,206

179,992

134,523

63,552

1,935,139

Charge-offs on auto loans

1,969

8,029

4,688

1,854

2,413

1,665

20,618

Finance leases

Accrual Status:

Performing

311,620

246,085

152,028

64,930

54,207

24,658

853,528

Non-Performing

309

1,188

663

351

191

585

3,287

Total finance leases

311,929

247,273

152,691

65,281

54,398

25,243

856,815

Charge-offs on finance leases

473

1,889

1,162

557

593

725

5,399

Personal loans

Accrual Status:

Performing

169,905

118,433

32,104

16,282

28,224

14,213

379,161

Non-Performing

190

1,078

207

106

145

115

1,841

Total personal loans

170,095

119,511

32,311

16,388

28,369

14,328

381,002

Charge-offs on personal loans

1,118

9,028

2,881

1,191

2,317

1,284

17,819

Credit cards

Accrual Status:

Performing

329,212

Non-Performing

Total credit cards

329,212

Charge-offs on credit cards

18,276

Other consumer loans

Accrual Status:

Performing

82,245

32,594

9,897

5,612

4,915

3,731

8,919

147,913

Non-Performing

634

537

113

135

137

1,689

Total other consumer loans

82,879

33,131

10,010

5,673

4,987

3,866

9,056

149,602

Charge-offs on other consumer loans

2,151

7,397

2,308

577

1,043

361

453

14,290

Total

Accrual Status:

Performing

1,194,277

929,966

578,132

265,390

219,259

104,242

338,131

3,629,397

Non-Performing

3,607

6,834

4,086

1,944

3,018

2,747

137

22,373

Total consumer loans

1,197,884

936,800

582,218

267,334

222,277

106,989

338,268

3,651,770

Charge-offs on total consumer loans

5,711

26,343

11,039

4,179

6,366

4,035

18,729

76,402

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

166

As of December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

Auto loans

Accrual Status:

Performing

135

970

1,105

Non-Performing

Total auto loans

135

982

1,117

Charge-offs on auto loans

300

324

Finance leases

Accrual Status:

Performing

Non-Performing

Total finance leases

Charge-offs on finance leases

Personal loans

Accrual Status:

Performing

202

273

Non-Performing

Total personal loans

202

273

Charge-offs on personal loans

Credit cards

Accrual Status:

Performing

Non-Performing

Total credit cards

Charge-offs on credit cards

Other consumer loans

Accrual Status:

Performing

223

328

2,246

1,548

4,446

Non-Performing

Total other consumer loans

223

328

2,265

1,588

4,505

Charge-offs on other consumer loans

Total

Accrual Status:

Performing

256

294

328

135

3,216

1,548

5,824

Non-Performing

Total consumer loans

256

294

328

135

3,247

1,588

5,895

Charge-offs on total consumer loans

300

324

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

167

As of December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

Auto loans

Accrual Status:

Performing

630,507

532,854

384,103

178,566

132,048

62,610

1,920,688

Non-Performing

2,474

4,031

3,103

1,426

2,610

1,924

15,568

Total auto loans

632,981

536,885

387,206

179,992

134,658

64,534

1,936,256

Charge-offs on auto loans

1,969

8,029

4,688

1,854

2,437

1,965

20,942

Finance leases

Accrual Status:

Performing

311,620

246,085

152,028

64,930

54,207

24,658

853,528

Non-Performing

309

1,188

663

351

191

585

3,287

Total finance leases

311,929

247,273

152,691

65,281

54,398

25,243

856,815

Charge-offs on finance leases

473

1,889

1,162

557

593

725

5,399

Personal loans

Accrual Status:

Performing

170,107

118,433

32,175

16,282

28,224

14,213

379,434

Non-Performing

190

1,078

207

106

145

115

1,841

Total personal loans

170,297

119,511

32,382

16,388

28,369

14,328

381,275

Charge-offs on personal loans

1,118

9,028

2,881

1,191

2,317

1,284

17,819

Credit cards

Accrual Status:

Performing

329,212

Non-Performing

Total credit cards

329,212

Charge-offs on credit cards

18,276

Other consumer loans

Accrual Status:

Performing

82,299

32,641

10,120

5,940

4,915

5,977

10,467

152,359

Non-Performing

634

537

113

154

177

1,748

Total other consumer loans

82,933

33,178

10,233

6,001

4,987

6,131

10,644

154,107

Charge-offs on other consumer loans

2,151

7,397

2,308

577

1,043

361

453

14,290

Total

Accrual Status:

Performing

1,194,533

930,013

578,426

265,718

219,394

107,458

339,679

3,635,221

Non-Performing

3,607

6,834

4,086

1,944

3,018

2,778

177

22,444

Total consumer loans

1,198,140

936,847

582,512

267,662

222,412

110,236

339,856

3,657,665

Charge-offs on total consumer loans

5,711

26,343

11,039

4,179

6,390

4,335

18,729

76,726

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

168

As of December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

Auto loans

Accrual Status:

Performing

674,145

510,950

254,196

206,345

99,008

39,138

1,783,782

Non-Performing

1,666

2,140

1,596

2,508

1,385

1,301

10,596

Total auto loans

675,811

513,090

255,792

208,853

100,393

40,439

1,794,378

Finance leases

Accrual Status:

Performing

292,995

192,435

88,196

81,186

48,332

13,441

716,585

Non-Performing

176

253

305

219

384

308

1,645

Total finance leases

293,171

192,688

88,501

81,405

48,716

13,749

718,230

Personal loans

Accrual Status:

Performing

175,875

55,993

29,320

53,911

22,838

13,727

351,664

Non-Performing

348

249

135

289

112

115

1,248

Total personal loans

176,223

56,242

29,455

54,200

22,950

13,842

352,912

Credit cards

Accrual Status:

Performing

311,731

Non-Performing

Total credit cards

311,731

Other consumer loans

Accrual Status:

Performing

79,630

21,488

9,345

11,941

4,030

3,761

8,921

139,116

Non-Performing

409

201

119

241

1,122

Total other consumer loans

80,039

21,689

9,406

12,060

4,050

4,002

8,992

140,238

Total

Accrual Status:

Performing

1,222,645

780,866

381,057

353,383

174,208

70,067

320,652

3,302,878

Non-Performing

2,599

2,843

2,097

3,135

1,901

1,965

14,611

Total consumer loans

1,225,244

783,709

383,154

356,518

176,109

72,032

320,723

3,317,489

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

169

As of December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

Auto loans

Accrual Status:

Performing

305

2,333

979

3,617

Non-Performing

Total auto loans

305

2,369

1,019

3,693

Finance leases

Accrual Status:

Performing

Non-Performing

Total finance leases

Personal loans

Accrual Status:

Performing

254

334

Non-Performing

Total personal loans

254

334

Credit cards

Accrual Status:

Performing

Non-Performing

Total credit cards

Other consumer loans

Accrual Status:

Performing

231

464

2,588

2,462

5,833

Non-Performing

119

Total other consumer loans

231

464

2,609

2,560

5,952

Total

Accrual Status:

Performing

303

302

473

305

2,372

3,567

2,462

9,784

Non-Performing

195

Total consumer loans

303

302

473

305

2,408

3,628

2,560

9,979

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

170

As of December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

Auto loans

Accrual Status:

Performing

674,145

510,950

254,196

206,650

101,341

40,117

1,787,399

Non-Performing

1,666

2,140

1,596

2,508

1,421

1,341

10,672

Total auto loans

675,811

513,090

255,792

209,158

102,762

41,458

1,798,071

Finance leases

Accrual Status:

Performing

292,995

192,435

88,196

81,186

48,332

13,441

716,585

Non-Performing

176

253

305

219

384

308

1,645

Total finance leases

293,171

192,688

88,501

81,405

48,716

13,749

718,230

Personal loans

Accrual Status:

Performing

176,129

56,064

29,329

53,911

22,838

13,727

351,998

Non-Performing

348

249

135

289

112

115

1,248

Total personal loans

176,477

56,313

29,464

54,200

22,950

13,842

353,246

Credit cards

Accrual Status:

Performing

311,731

Non-Performing

Total credit cards

311,731

Other consumer loans

Accrual Status:

Performing

79,679

21,719

9,809

11,941

4,069

6,349

11,383

144,949

Non-Performing

409

201

119

262

169

1,241

Total other consumer loans

80,088

21,920

9,870

12,060

4,089

6,611

11,552

146,190

Total

Accrual Status:

Performing

1,222,948

781,168

381,530

353,688

176,580

73,634

323,114

3,312,662

Non-Performing

2,599

2,843

2,097

3,135

1,937

2,026

169

14,806

Total consumer loans

1,225,547

784,011

383,627

356,823

178,517

75,660

323,283

3,327,468

(1)

Excludes accrued interest receivable.

As of December 31, 2023 and 2022, the balance of revolving loans converted to term

loans was

t material.

Accrued interest

receivable on loans

totaled $

62.3

million as of

December 31, 2023

(2022 - $

53.1

million), was reported

as part of

accrued

interest receivable

on loans

and

investment

securities in

the consolidated

statements

of financial

condition,

and is

excluded

from the estimate of credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

171

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

determining the ACL as of December 31, 2023 and 2022

As of December 31, 2023

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

25,355

1,732

25,355

1,732

Commercial loans:

Construction loans

956

Commercial mortgage loans

4,454

135

40,683

45,137

135

C&I loans

9,390

1,563

6,780

16,170

1,563

Consumer loans:

Personal loans

Other consumer loans

123

39,350

3,443

48,419

87,769

3,443

As of December 31, 2022

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

36,206

2,571

36,206

2,571

Commercial loans:

Construction loans

956

Commercial mortgage loans

2,466

897

62,453

64,919

897

C&I loans

1,513

322

17,590

19,103

322

Consumer loans:

Personal loans

120

Other consumer loans

207

40,448

3,820

81,063

121,511

3,820

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans consisted

single-family

residential

properties,

and for

commercial and

construction loans

consisted primarily

of office

buildings, multifamily

residential properties,

and

retail establishments. The

weighted-average loan-to-value

coverage for collateral

dependent loans as of

December 31, 2023

was

compared

December

31,

2022,

mainly

nonaccrual

commercial

mortgage

loan,

with

loan-to-value

over

100

%, transferred to OREO during 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

172

Purchases and Sales of Loans

the

ordinary

course

business,

the

Corporation

enters

into

securitization

transactions

and

whole

loan

sales

with

GNMA

and

GSEs,

such

FNMA

and

FHLMC.

During

the

years

ended

December

31,

2023,

2022,

and

2021,

loans

pooled

into GNMA

MBS

amounted to

approximately $

125.4

million, $

144.5

million, and

190.8

million, respectively,

for which

the Corporation

recognized a

net gain

on sale of

2.6

million, $

4.2

million, and

8.8

million, respectively.

Also, during the

years ended

December 31,

2023, 2022,

and 2021, the Corporation sold

approximately $

29.8

million, $

93.8

million, and $

328.2

million, respectively,

of performing residential

mortgage

loans to

FNMA

and

FHLMC,

for

which

the Corporation

recognized

a net

gain

sale of

0.7

million,

4.2

million,

and

11.4

million, respectively.

The Corporation’s

continuing involvement

with the

loans that

it sells

consists primarily

of servicing

the

loans. In

addition, the

Corporation agrees

to repurchase

loans if

it breaches

any of

the representations

and warranties

included in

the

sale agreement. These representations

and warranties are consistent with

the GSEs’ selling and

servicing guidelines (

i.e.

, ensuring that

the mortgage was properly underwritten according to established guidelines).

For loans

pooled into

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or

after January 1,

2003 when certain

delinquency criteria are

met. This option

gives the Corporation

the unilateral ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

have

regained

effective

control

over

the

loans,

required

recognize

the

loans

and

corresponding

repurchase

liability

regardless

its

intent

repurchase

the

loans.

December

31,

2023

and

2022,

rebooked

GNMA

delinquent

loans

that

were

included in the residential mortgage loan portfolio amounted to $

7.9

million and $

10.4

million, respectively.

During

the

years

ended

December

31,

2023,

2022,

and

2021,

the

Corporation

repurchased,

pursuant

the

aforementioned

repurchase

option,

2.9

million,

8.2

million,

and

1.1

million,

respectively,

loans

previously

pooled

into

GNMA

MBS.

The

principal

balance

these

loans

fully

guaranteed,

and

the

risk

loss

the

repurchased

loans

is generally

limited

the

difference between

the delinquent interest

payment advanced to

GNMA, which is computed

at the loan’s

interest rate, and

the interest

payments

reimbursed

FHA,

which

are

computed

pre-determined

debenture

rate.

Repurchases

GNMA

loans

allow

the

Corporation,

among

other

things,

to maintain

acceptable

delinquency

rates

on outstanding

GNMA

pools

and

remain as

seller

and

servicer in good standing with GNMA.

Historically, losses

on these repurchases of GNMA

delinquent loans have been immaterial

and

no provision has been made at the time of sale.

Loan sales to FNMA and FHLMC are without recourse

in relation to the future performance of the loans.

The Corporation’s risk of

loss

with

respect

these

loans

also

minimal

these

repurchased

loans

are

generally

performing

loans

with

documentation

deficiencies.

During

the

years

ended

December

31,

2023,

2022,

and

2021,

the

Corporation

purchased

C&I

loan

participations

the

Florida

region totaling $

61.3

million, $

135.4

million, and $

174.7

million, respectively.

There were

significant sales

of commercial

loans during the

year ended

December 31, 2023.

Meanwhile, during

the year

ended

December

31,

2022,

the

Corporation

sold

35.2

million

C&I

loan

participation

the

Puerto

Rico

region

and

23.9

million

criticized C&I loan

participation in the Florida

region. During the

year ended December

31, 2021, the

Corporation sold a $

3.1

million

construction

loan

the

Puerto

Rico

region

and

four

criticized

commercial

loan

participations

the

Florida

region

totaling

43.1

million.

Further,

during

the

third

quarter

2021,

the

Corporation

sold

52.5

million

non-performing

residential

mortgage

loans

and

servicing

advances

2.0

million.

The

Corporation

received

31.5

million,

book

value

before

reserves,

for

the

54.5

million of non-performing

loans and related

servicing advances.

Approximately $

20.9

million of reserves

had been allocated

the loans

sold. The

transaction resulted

in total

net charge-offs

of $

23.1

million and

an additional

loss of

approximately $

2.1

million

recorded as charge to the provision for credit losses in the third

quarter of 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

173

Loan Portfolio Concentration

The Corporation’s

primary

lending area

is Puerto

Rico. The

Corporation’s

banking subsidiary,

FirstBank, also

lends in

the USVI

and the BVI markets and

in the United States (principally

in the state of Florida).

Of the total gross loans held

for investment portfolio

of $

12.2

billion as

of December

31, 2023,

credit risk

concentration was

approximately

% in

Puerto Rico,

% in

the U.S.,

and

in the USVI and the BVI.

As of

December

31,

2023,

the Corporation

had

187.7

million

outstanding

loans

extended

the Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

169.8

million

December

31,

2022.

December

31,

2023,

approximately

115.8

million consisted

of loans

extended

to municipalities

in Puerto

Rico that

are general

obligations supported

assigned

property

tax

revenues,

and

25.6

million

loans

which

are

supported

one

specific

sources

municipal

revenues. The

vast

majority

revenues

the

municipalities

included

the

Corporation’s

loan

portfolio

are

independent

budgetary subsidies provided by the Puerto Rico central

government. These municipalities are required

by law to levy special property

taxes in such amounts as are required to satisfy the

payment of all of their respective general obligation

bonds and notes. In addition to

loans extended

to municipalities,

the Corporation’s

exposure to

the Puerto

Rico government

as of

December 31,

2023 included

8.9

million in

loans granted to

an affiliate of

the Puerto Rico

Electric Power Authority

(“PREPA”)

and $

37.4

million in loans

to agencies

or public corporations of the Puerto Rico government.

addition,

December

31,

2023,

the

Corporation

had

77.7

million

exposure

residential

mortgage

loans

that

are

guaranteed by the

PRHFA, a

government instrumentality

that has been designated

as a covered entity

under PROMESA, compared

84.7

million

December

31,

2022.

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties and the guarantees serve to cover shortfalls in collateral in the event

of a borrower default.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

December

31,

2023,

the

Corporation

had

90.5

million in

loans to

USVI government

public corporations,

compared to

38.0

million as

of December

31, 2022.

As of

December 31,

2023, all loans were currently performing and up to date on principal

and interest payments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

174

Loss Mitigation Program for Borrowers Experiencing

Financial Difficulty

Effective January 1, 2023, the Corporation

adopted ASU 2022-02. For additional information

on the adoption, see Note 1 – “Nature

of Business and Summary of Significant Accounting Policies.”

The Corporation provides assistance to

its customers through a loss mitigation

program. Depending upon the

nature of a borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program

are

provided,

well

other

restructurings

individual

C&I,

commercial

mortgage,

construction,

and

residential

mortgage

loans.

The

Corporation

may

also

modify

contractual

terms to comply with regulations regarding the treatment of certain bankruptcy

filings and discharge situations.

The

loan

modifications

granted

borrowers

experiencing

financial

difficulty

that

are

associated

with

payment

delays

typically

include the following:

Forbearance plans –

Payments of either interest

and/or principal are

deferred for a pre-established

period of time, generally

not

exceeding

six

months

any

given

year.

The

deferred

interest

and/or

principal

repaid

either

lump

sum

payment

maturity date or by extending the loan’s

maturity date by the number of forbearance months granted.

Payment

plans

–

Borrowers

are

allowed

pay

the

regular

monthly

payment

plus

the

pre-established

delinquent

amounts

during a period generally not exceeding

six months.

At the end of the payment plan, the

borrower is required to resume making

its regularly scheduled loan payments.

Trial modifications

– These types of loan

modifications are granted for

residential mortgage loans. Borrower

continue making

reduced monthly payments during

the trial period, which is

generally of up to six

months. The reduced payments

that are made

by the

borrower during

the trial

period will

result in

a payment

delay with

respect to

the original

contractual terms

of the

loan

since

the

loan

has

not

yet

been

contractually

modified.

After

successful

completion

the

trial

period,

the

mortgage

loan

contractually modified.

Modifications

the

form

reduction

interest

rate,

term

extension,

other-than-insignificant

payment

delay,

any

combination

these

types

loan

modifications

that

have

occurred

the

current

reporting

period

for

borrower

experiencing

financial

difficulty

are

disclosed

the

tables

below.

Many

factors

are

considered

when

evaluating

whether

there

other-than-

insignificant

payment

delay,

such as

the significance

of the

restructured

payment

amount relative

to the

unpaid

principal balance

collateral value of the loan or the relative significance of the delay to

the original loan terms.

The

below

disclosures

relate

loan

modifications

granted

borrowers

experiencing

financial

difficulty

which

there

was

change

the

timing

and/or

amount

contractual

cash

flows

the

form

any

the

aforementioned

types

modifications,

including

restructurings

that

resulted

more-than-insignificant

payment

delay.

These

disclosures

exclude

3.9

million

restructured

residential

mortgage

loans

that

are

government-guaranteed

(e.g.,

FHA/VA

loans)

and

were

modified

during

the

year

ended December 31, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

175

The

following

table

presents

the

amortized

cost

basis

December

31,

2023

loans

modified

borrowers

experiencing

financial

difficulty

during

the

year

ended

December

31,

2023,

portfolio

classes

and

type

modification

granted,

and

the

percentage of these modified loans relative to the total period-end

amortized cost basis of receivables in the portfolio class:

Year Ended December 31, 2023

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction

and Term

Extension

Other

Total

Percentage

of Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

501

999

238

1,738

0.06%

Construction loans

Commercial mortgage loans

2,222

30,170

32,392

1.40%

C&I loans

186

185

371

0.01%

Consumer loans:

Auto loans

474

215

2,084

(1)

2,773

0.14%

Personal loans

138

202

340

0.09%

Credit cards

1,424

(2)

1,424

0.43%

Other consumer loans

424

(1)

531

0.34%

Total modifications

501

1,610

4,442

30,903

2,113

39,569

(1)

Modification consists of reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings or consumer credit counseling programs unless dismissal occurs.

(2)

Modification consists of reduction in interest rate and revocation of revolving line privileges.

The

following

table

presents

portfolio

classes

the

financial

effects

the

modifications

granted

borrowers

experiencing

financial difficulty,

other than those

associated to payment

delay,

during the year

ended December 31,

2023. The financial

effects of

the modifications associated to payment delay were discussed above and, as such,

were excluded from the table below:

Year Ended December 31,

2023

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

2.95

105

Construction loans

Commercial mortgage loans

0.25

C&I loans

0.45

Consumer loans:

Auto loans

2.95

Personal loans

4.57

Credit cards

16.09

Other consumer loans

1.60

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

176

The following table presents by portfolio classes the performance of loans modified

during the year ended December 31,

2023

that were granted to borrowers experiencing financial difficulty:

Year Ended December 31,

2023

30-59

60-89

90+

Total

Delinquency

Current

Total

(In thousands)

Conventional residential mortgage loans

1,724

1,738

Construction loans

Commercial mortgage loans

32,392

C&I loans

371

Consumer loans:

Auto loans

2,710

2,773

Personal loans

273

340

Credit cards

1,363

1,424

Other consumer loans

454

531

Total modifications

182

282

39,287

39,569

The following table presents the amortized cost basis of classes of financing receivables

that had a payment default (failure by the

borrower to make payments of either principal, interest, or both for a period of 90 days

or more) and were modified to borrowers

experiencing financial difficulty during the year ended

December 31, 2023:

Year ended

December 31,

2023

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction

and Term

Extension

Forgiveness of

Principal

and/or

Interest

Other

Total

(In thousands)

Conventional residential mortgage

loans

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

Personal loans

Credit cards

Other consumer loans

Total modifications

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

177

Troubled Debt

Restructuring ("TDR") Disclosures Prior to

Adoption of ASU 2022-02

The

following

provides

additional

disclosures

previously

required

ASC

Subtopic

310-40,

Receivables

Troubled

Debt

Restructurings

Creditors,

the

years

ended

December

31,

2022

and

2021.

Prior

the

adoption

ASU

2022-02,

restructuring of

a loan

constituted a

TDR if

the creditor,

for economic

or legal

reasons related

to the

borrower's financial

difficulties,

granted

concession

the

borrower

that

would

not

otherwise

consider.

See

Note

"Nature

Business

and

Summary

Significant Accounting

Policies" and Note

4 - "Loans

Held For

Investment" to

the audited

consolidated financial

statements included

in the

Annual Report

on Form

10-K

for the year

ended December 31,

2022, filed

with the

SEC on February

28, 2023, for

additional

discussion of TDRs. The following tables present TDR loans completed during

the years ended December 31, 2022 and 2021:

Year Ended December 31,

2022

Total

Interest rate

below market

Maturity or

term extension

Combination

of reduction in

interest rate

and extension

of maturity

Forgiveness of

principal

and/or interest

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

433

1,551

242

4,874

7,100

Construction loans

Commercial mortgage loans

245

5,178

467

5,890

C&I loans

2,402

618

825

1,083

4,928

Consumer loans:

Auto loans

2,877

232

345

3,454

Finance leases

573

591

Personal loans

171

105

394

Credit cards

816

(2)

816

Other consumer loans

112

272

443

Total TDRs

6,739

3,044

6,504

868

6,461

23,616

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation programs, or

a combination of two or more of the concessions listed

the table. Amounts included in Other that represent a combination of

concessions are excluded from the amounts reported in the

column for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

Year Ended December 31,

2021

Total

Interest rate

below market

Maturity or

term extension

Combination

of reduction in

interest rate

and extension

of maturity

Forgiveness of

principal

and/or interest

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

365

859

2,647

3,723

7,594

Construction loans

Commercial mortgage loans

10,586

637

11,223

C&I loans

300

9,100

508

9,908

Consumer loans:

Auto loans

1,888

433

277

2,598

Finance leases

645

697

Personal loans

387

504

Credit cards

1,426

(2)

1,426

Other consumer loans

110

266

Total TDRs

3,802

2,376

23,023

4,938

34,216

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation programs, or

a combination of two or more of the concessions listed

the table. Amounts included in Other that represent a combination of

concessions are excluded from the amounts reported in the

column for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

178

Year Ended December

31,

2022

Year Ended December

31,

2021

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

(Dollars in thousands)

TDRs:

Conventional residential mortgage loans

7,165

7,100

7,687

7,594

Construction loans

Commercial mortgage loans

5,897

5,890

11,285

11,223

C&I loans

5,156

4,928

10,031

9,908

Consumer loans:

Auto loans

168

3,404

3,454

134

2,601

2,598

Finance leases

592

591

692

697

Personal loans

366

394

497

504

Credit Cards

170

815

816

246

1,426

Other consumer loans

115

434

443

266

Total TDRs

600

23,829

23,616

612

34,485

34,216

Loan modifications considered

TDR loans that defaulted

(failure by the

borrower to make

payments of either

principal, interest, or

both for a period of 90

days or more) during the years

ended December 31, 2022 and 2021,

and had become TDR loans during

the 12-

months preceding the default date, were as follows:

Year Ended December 31,

2022

Year Ended December 31,

2021

Number of contracts

Amortized Cost

Number of contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

124

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

2,049

1,625

Finance leases

Personal loans

Credit cards

156

126

Other consumer loans

Total

135

2,375

128

1,797

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

179

NOTE 5 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following tables present the activity in the ACL on loans and finance leases by

portfolio segment for the indicated periods:

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Year Ended December

31,

2023

(In thousands)

ACL:

Beginning balance

62,760

2,308

35,064

32,906

127,426

260,464

Impact of adoption of ASU 2022-02

2,056

2,116

Provision for credit losses - (benefit) expense

(6,866)

1,408

(2,086)

6,372

67,816

66,644

Charge-offs

(3,245)

(62)

(1,133)

(6,936)

(76,726)

(88,102)

Recoveries

2,692

1,951

786

841

14,451

20,721

Ending balance

57,397

5,605

32,631

33,190

133,020

261,843

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Year Ended December

31,

2022

(In thousands)

ACL:

Beginning balance

74,837

4,048

52,771

34,284

103,090

269,030

Provision for credit losses - (benefit) expense

(8,734)

(2,342)

(18,994)

(1,770)

57,519

25,679

Charge-offs

(6,890)

(123)

(85)

(2,067)

(48,165)

(57,330)

Recoveries

3,547

725

1,372

2,459

14,982

23,085

Ending balance

62,760

2,308

35,064

32,906

127,426

260,464

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Year Ended December

31, 2021

(In thousands)

ACL:

Beginning balance

120,311

5,380

109,342

37,944

112,910

385,887

Provision for credit losses - (benefit) expense

(16,957)

(1,408)

(55,358)

(8,549)

20,552

(61,720)

Charge-offs

(33,294)

(87)

(1,494)

(1,887)

(43,948)

(80,710)

Recoveries

4,777

163

281

6,776

13,576

25,573

Ending balance

74,837

4,048

52,771

34,284

103,090

269,030

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

180

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

“Nature

Business

and

Summary

Significant Accounting Policies” for each portfolio segment.

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

each

scenario

for

the

different

loan

portfolio

categories

depend

variety

factors

including

recent

economic

events,

leading

national

and

regional

economic

indicators,

and

industry

trends.

December

31,

2023,

the

Corporation

applied

the

baseline

scenario

for

the

commercial

mortgage

and

construction

loan

portfolios

deterioration

the

commercial

real

estate

price

index

(“CRE price index”) in these portfolios

was expected at a lower extent than

projected in the alternative downside scenario,

particularly

in the Puerto Rico region.

December

31,

2023,

the

ACL

for

loans

and

finance

leases

was

261.8

million,

increase

1.3

million,

from

260.5

million

December

31,

2022.

The

ACL

for

consumer

loans

increased

5.6

million,

primarily

reflecting

the

effect

the

increase

in the

size of

the consumer

loan portfolios

and increases

in delinquency

and historical

charge-off

levels, partially

offset

updated

macroeconomic

variables.

The

ACL

for

commercial

and

construction

loans

increased

1.1

million,

mainly

due

the

growth

the

commercial

and

construction

loan

portfolios

and

1.7

million

incremental

reserve

recorded

during

2023

associated

with the

inflow to

nonaccrual status

of a

9.5

million C&I

loan in

the Puerto

Rico region,

partially offset

by an

improvement on

the

economic

outlook

certain

macroeconomic

variables,

such

the

CRE

price

index.

The

ACL

for

residential

mortgage

loans

decreased

5.4

million,

mainly

driven

updated

macroeconomic

variables,

such

the

Regional

Home

Price

Index

and

the

unemployment rate,

partially offset

by newly

originated loans

that have

a longer

life and

the $

2.1

million cumulative

increase in

the

ACL

due

the

adoption

ASU

2022-02

January

2023.

See

Note

–“Nature

Business

and

Summary

Significant

Accounting Policies” for additional information related to the adoption

of ASU 2022-02.

Net

charge-offs

totaled

67.4

million

for

the

year

ended

December

31,

2023,

compared

34.2

million

for

the

year

ended

December 31, 2022,

mainly driven by

a $

29.1

million increase in

consumer loans and

finance leases net

charge-offs, mainly

reflected

the

auto,

personal,

and

credit card

loan

portfolios;

and

6.5

million

increase

C&I loans

mainly

driven

by a

6.0

million

net

charge-off recorded on a C&I participated

loan in the Florida region in the power generation industry.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

181

The tables below

present the ACL

related to loans

and finance leases

and the carrying

values of loans

by portfolio segment

as of

December 31,

2023 and 2022:

As of December 31,

2023

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

C&I

Loans

Consumer Loans

Total

(Dollars in thousands)

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

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

As of December 31, 2022

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

C&I

Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,847,290

132,953

2,358,851

2,886,263

3,327,468

11,552,825

Allowance for credit losses

62,760

2,308

35,064

32,906

127,426

260,464

Allowance for credit losses to

amortized cost

2.20

1.74

1.49

1.14

3.83

2.25

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

which

the

Corporation

exposed

credit

risk

via

contractual

obligation

extend

credit,

such

unfunded

loan

commitments

and

standby

letters

credit

for

commercial

and

construction

loans,

unless

the

obligation

unconditionally

cancellable

the

Corporation.

See

Note

–

“Regulatory Matters,

Commitments and

Contingencies” for information

on off-balance

sheet exposures as

of December

31, 2023 and

2022.

The

Corporation

estimates

the

ACL

for

these

off-balance

sheet

exposures

following

the

methodology

described

Note

–

“Nature

Business

and

Summary

Significant

Accounting

Policies.”

December

31,

2023,

the

ACL

for

off-balance

sheet

credit exposures increased to $

4.6

million, from $

4.3

million as of December 31, 2022.

The

following

table

presents

the

activity

the

ACL

for

unfunded

loan

commitments

and

standby

letters

credit

for

the

years

ended December 31, 2023, 2022 and 2021:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Beginning Balance

4,273

1,537

5,105

Provision for credit losses - expense (benefit)

365

2,736

(3,568)

Ending balance

4,638

4,273

1,537

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

182

NOTE 6 – PREMISES AND EQUIPMENT

Premises and equipment comprise:

Useful Life Range In Years

As of December 31,

Minimum

Maximum

2023

2022

(Dollars in thousands)

Buildings and improvements

143,470

135,802

Leasehold improvements

77,702

76,390

Furniture, equipment and software

161,886

155,567

383,058

367,759

Accumulated depreciation and amortization

(277,853)

(264,233)

105,205

103,526

Land

29,965

24,485

Projects in progress

6,846

14,924

Total premises and equipment,

net

142,016

142,935

Depreciation and

amortization expense

amounted to

20.5

million, $

22.3

million, and

25.0

million for

the years ended

December

31, 2023, 2022, and 2021, respectively.

During the year ended December 31, 2023, the Corporation

recognized $

3.5

million in net gains from sales of fixed assets, of which

3.0

million

was

the

sale

banking

premise

the

Florida

region,

compared

0.9

million

during

the

year

ended

December 31, 2022.

During the year

ended December 31, 2023,

the Corporation received insurance

proceeds of $

0.7

million, of which $

0.2

million was

the

collection

insurance

claim

associated

with

property

damage

caused

Hurricane

Fiona.

Also,

during

the

year

ended December

31, 2021,

the Corporation

received insurance

proceeds of

0.6

million related

to the

settlement and

collection of

insurance

claim

associated

with

damaged

property.

These

amounts

are

included

part

other

non-interest

income

the

consolidated statements of income.

See Note 25 – “Fair Value”

for information on write-downs recorded on long-lived assets held for sale.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

183

NOTE 7

–

OTHER REAL ESTATE

OWNED

The following table presents the OREO inventory as of the indicated dates:

December 31, 2023

December 31, 2022

(In thousands)

OREO balances, carrying value:

Residential

(1)

20,261

24,025

Construction

1,601

1,764

Commercial

10,807

5,852

Total

32,669

31,641

(1)

Excludes $

16.6

million and $

23.5

million as of December 31, 2023

and 2022, respectively, of

foreclosures that met the conditions

of ASC Subtopic 310-40 “Reclassification

of Residential

Real Estate Collateralized Consumer Mortgage Loans upon

Foreclosure,” and are presented as a receivable as part of other

assets in the consolidated statements of financial condition.

See

Note

–

“Fair

Value”

for

information

the

subsequent

measurement

recorded

OREO

properties

the

consolidated

statements of income within “Net gain on OREO operations” during the

years ended December 31, 2023, 2022, and 2021.

NOTE 8 – RELATED-PARTY

TRANSACTIONS

The

Corporation

has

granted

loans

its

directors,

executive

officers,

and

certain

individuals

entities

the

ordinary

course of business. The movement and balance of these loans were as follows:

Amount

(1)

(In thousands)

Balance at December 31,

2021

943

Additions

Payments

(149)

Balance at December 31,

2022

883

Additions

333

Payments

(389)

Balance at December 31,

2023

827

(1) Includes loans granted to related parties which were then

sold in the secondary market.

These

loans

were

made

subject

the

provisions

the

Federal

Reserve

Board’s

Regulation

–

“Loans

Executive

Officers,

Directors

and

Principal

Shareholders

Member

Banks,”

which

governs

the

permissible

lending

relationships

between

financial

institution and its

executive officers, directors,

principal shareholders, their

families, and related

parties. There were

no changes in

the

status of related parties during 2023 and 2022.

From

time

time,

the

Corporation,

the

ordinary

course

its

business,

obtains

services

from

parties

makes

contributions to non-profit organizations that have some association

with the Corporation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

184

NOTE 9 – GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill as of each of December

31, 2023 and 2022 amounted to $

38.6

million.

The Corporation’s policy is to assess goodwill and

other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events or

circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth quarter

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

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

impairment charges for goodwill were recorded. This assessment involved identifying the inputs and assumptions that most affect fair

value, including evaluating significant and relevant events impacting each reporting entity, and evaluating such factors to determine if

a positive assertion can be made that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying

amount.

In the qualitative assessment performed for each reporting unit, the Corporation evaluated events and circumstances that could

impact the fair value including the following:

● Macroeconomic conditions, such as improvement or deterioration in general economic conditions;

● Industry and market considerations;

● Interest rate fluctuations;

● Overall financial performance of the reporting unit;

● Performance of industry peers over the last year; and

● Recent market transactions

There were

changes in the carrying amount of goodwill during the years ended

December 31, 2023 and 2022. The changes in the

carrying

amount

goodwill

attributable

operating

segments

during

the

year

ended

December

31,

2021

are

reflected

the

following table.

Mortgage Banking

Consumer (Retail)

Banking

Commercial and

Corporate Banking

United States

Operations

Total

(In thousands)

Goodwill, January 1, 2021

959

2,733

8,248

26,692

38,632

Measurement period adjustment

(1)

(148)

(21)

Goodwill, December 31, 2021

(2)

1,012

2,807

8,100

26,692

38,611

(1)

Relates to the fair value estimate update performed within one year

of the closing of the BSPR acquisition, in accordance with

ASC Topic 805, "Business

Combinations"("ASC 805").

(2)

Includes $

10.5

million related to the BSPR acquisition.

Merger and Restructuring Costs – BSPR Acquisition

In connection

with the

BSPR acquisition

on September

1, 2020,

the Corporation

recognized acquisition

expenses of

26.4

million

during

the

year

ended

December

31,

2021.

Acquisition,

integration,

and

restructuring

expenses

were

included

merger

and

restructuring

costs

the

consolidated

statements

income,

and

consisted

primarily

costs

voluntary

and

involuntary

separation actions

and systems

conversions, as

well as

accelerated depreciation

charges related

to planned

closures and

consolidation

of branches in accordance with the Corporation’s

integration and restructuring plan, and other integration related efforts.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

185

Other Intangible Assets

The

following

table

presents

the

gross

amount

and

accumulated

amortization

the

Corporation’s

intangible

assets

subject

amortization as of the indicated dates:

As of

December 31,

2023

2022

(Dollars in thousands)

Core deposit intangible:

Gross amount

87,544

Accumulated amortization

(74,161)

(66,644)

Net carrying amount

13,383

20,900

Remaining amortization period (in years)

6.0

7.0

Purchased credit card relationship intangible:

Gross amount

3,800

Accumulated amortization

(3,595)

Net carrying amount

205

Remaining amortization period (in years)

0.7

Insurance customer relationship intangible:

Gross amount

1,067

Accumulated amortization

(1,054)

Net carrying amount

Remaining amortization period (in years)

0.1

During

the

years

ended

December

31,

2023,

2022,

and

2021,

the

Corporation

recognized

7.7

million,

8.8

million,

and

11.4

million, respectively,

in amortization expense on its other intangibles subject to amortization

The Corporation amortizes core deposit intangibles based on the projected useful lives of the related deposits. Core deposit

intangibles are analyzed annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that

may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that

would indicate a possible impairment to the core deposit intangibles as of December 31, 2023.

The estimated

aggregate annual

amortization expense

related to the

intangible assets

subject to amortization

for future periods

was

as follows as of December 31, 2023

(In thousands)

2024

6,416

2025

3,509

2026

872

2027

872

2028

872

2029 and after

842

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

186

NOTE 10 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIEs”) AND SERVICING

ASSETS

The Corporation

transfers residential

mortgage loans

in sale

or securitization

transactions in

which it

has continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

sales

required

applicable accounting guidance.

When

evaluating

the

need

consolidate

counterparties

which

the

Corporation

has

transferred

assets,

with

which

the

Corporation has

entered into

other transactions,

the Corporation

first determines

if the

counterparty is

an entity

for which

a variable

interest

exists.

scope

exception

applicable

and

variable

interest

exists,

the

Corporation

then

evaluates

whether

the

primary beneficiary of the VIE and whether the entity should be consolidated

or not.

Below is a summary of transactions with VIEs for which the Corporation has retained

some level of continuing involvement:

Trust-Preferred

Securities (“TRuPs”)

In April 2004,

FBP Statutory Trust

I, a financing

trust that is wholly

owned by the

Corporation, sold to

institutional investors $

100

million of its variable

-rate TRuPs. FBP Statutory

Trust I used

the proceeds of the

issuance, together with the

proceeds of the purchase

the

Corporation

3.1

million

FBP

Statutory

Trust

variable-rate

common

securities, to

purchase

103.1

million

aggregate

principal

amount

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

September

2004,

FBP

Statutory

Trust

II,

financing

trust that

is wholly

owned by

the Corporation,

sold to

institutional investors

125

million of

its variable-rate

TRuPs. FBP

Statutory Trust

II used

the proceeds of

the issuance,

together with

the proceeds of

the purchase by

the Corporation

of $

3.9

million of

FBP Statutory

Trust

II variable-rate

common securities,

to purchase

128.9

million aggregate

principal amount

of the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

The

debentures,

net

issuance

costs,

are

presented

the

Corporation’s

consolidated statements of financial

condition as other long-term borrowings.

These TRuPs are variable-rate

instruments indexed to

month CME Term SOFR

plus a

tenor spread

adjustment of

0.26161

% and the

original spread

2.75

% for the

FBP Statutory

Trust I

and

2.50

% for

the FBP

Statutory Trust

II.

The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September

20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be

shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs).

During 2023,

the Corporation

completed the

repurchase of

21.4

million of

TRuPs of

FBP Statutory

Trust I

as part of

a privately-

negotiated transaction with investors, resulting in a commensurate reduction

in the related floating rate junior subordinated debentures.

The purchase

price paid

by the Corporation

equated to

92.5

% of

the $

21.4

million par

value. The

7.5

% discount

resulted in

a gain of

approximately $

1.6

million, which

is reflected

in the

consolidated statements

of income

as a

“Gain on

early extinguishment

of debt.”

As of December 31, 2023 and 2022, these Junior

Subordinated Deferrable Debentures amounted to $

161.7

million and $

183.8

million,

respectively.

Under the indentures of these instruments,

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 December

31, 2023, the Corporation was current on all interest payments due on its subordinated

debt.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

187

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

series of

statutory

trusts

effect

the

securitization

mortgage

loans

and

the

sale

trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing for

a fee, which

is senior to

the obligations to

pay private label

MBS holders. The

seller then entered

into a sales

agreement

through

which

it sold

and

issued

the

private

label

MBS in

favor

the

Corporation’s

banking

subsidiary,

FirstBank.

Currently,

the

Bank is

the sole

owner of

these private

label MBS;

the servicing

of the

underlying

residential mortgages

that generate

the principal

and interest cash

flows is performed

by another third party

which

receives a servicing

fee. These private

label MBS are variable

-rate

securities indexed

3-month CME Term SOFR

plus a

tenor

spread

adjustment

0.26161

% and

the original

spread

limited to

the

weighted-average

coupon

the

underlying

collateral.

The

principal

payments

from

the

underlying

loans

are

remitted

paying

agent

(servicer),

who

then

remits

interest

the

Bank.

Interest

income

shared

certain

extent

with

the

FDIC,

which

has

interest only strip (“IO”) tied to the

cash flows of the underlying loans

and is entitled to receive the excess

of the interest income less a

servicing

fee

over

the

variable

rate

income

that

the

Bank

earns

the

securities.

The

FDIC

became

the

owner

the

upon

its

intervention of the seller,

a failed financial institution.

No recourse agreement exists, and

the Bank, as the sole

holder of the securities,

absorbs all

risks from

losses on

non-accruing loans

and repossessed

collateral. As

of December

31, 2023,

the amortized

cost and

fair

value

of these

private

label MBS

amounted

to $

7.1

million and

4.8

million, respectively,

with a

weighted

average yield

7.66

which is included

as part of

the Corporation’s

available-for-sale debt

securities portfolio.

As described

in Note 3

– “Debt

Securities,”

the ACL on these private label MBS amounted to $

0.1

million as of December 31, 2023.

Servicing Assets (MSRs)

The

Corporation

typically

transfers

first

lien

residential

mortgage

loans in

conjunction

with

GNMA

securitization

transactions

which the

loans are

exchanged for

cash or

securities that

are readily

redeemed for

cash proceeds

and servicing

rights. The

securities

issued

through

these

transactions

are

guaranteed

GNMA

and,

under

seller/servicer

agreements,

the

Corporation

required

service

the

loans

accordance

with

the

issuers’

servicing

guidelines

and

standards.

December

31,

2023,

the

Corporation

serviced

loans securitized

through

GNMA with

a principal

balance

2.1

billion.

Also, certain

conventional

conforming

loans are

sold to FNMA or FHLMC

with servicing retained. The

Corporation recognizes as separate

assets the rights to service

loans for others,

whether those servicing

assets are originated or

purchased. MSRs are included

as part of other

assets in the consolidated

statements of

financial condition.

The changes in MSRs are shown below for the indicated periods:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Balance at beginning of year

29,037

30,986

33,071

Capitalization of servicing assets

2,240

3,122

5,194

Amortization

(4,322)

(4,978)

(7,215)

Temporary impairment

recoveries

124

Other

(1)

(26)

(159)

(188)

Balance at end of year

26,941

29,037

30,986

(1)

Mainly represents adjustments related to the repurchase

of loans serviced for others.

Impairment

charges

are

recognized

through

valuation

allowance

for

each

individual

stratum

servicing

assets.

The

valuation

allowance

is adjusted

to reflect

the amount,

if any,

by which

the cost

basis of

the servicing

asset for

a given

stratum of

loans being

serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing

asset for a given stratum is not recognized.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

188

Changes in the impairment allowance were as follows for the indicated periods:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Balance at beginning of year

202

Temporary impairment

recoveries

(12)

(66)

(124)

Balance at end of year

The components

of net servicing

income, included as

part of mortgage

banking activities in

the consolidated

statements of income,

are shown below for the indicated periods:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Servicing fees

10,595

11,096

12,176

Late charges and prepayment penalties

708

823

697

Other

(1)

(26)

(159)

(189)

Servicing income, gross

11,277

11,760

12,684

Amortization and impairment of servicing assets

(4,310)

(4,912)

(7,091)

Servicing income, net

6,967

6,848

5,593

(1) Mainly represents adjustments related to the repurchase

of loans serviced for others.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

189

The Corporation’s

MSRs are subject

to prepayment and

interest rate risks.

Key economic assumptions

used in determining

the fair

value at the time of sale of the related mortgages for the indicated periods

ranged as follows:

Weighted Average

Maximum

Minimum

Year Ended

December 31, 2023

Constant prepayment rate:

Government-guaranteed mortgage loans

6.6

18.0

3.8

Conventional conforming mortgage loans

7.3

16.9

2.4

Conventional non-conforming mortgage loans

6.0

9.0

2.1

Discount rate:

Government-guaranteed mortgage loans

11.5

Conventional conforming mortgage loans

9.5

10.0

9.5

Conventional non-conforming mortgage loans

12.6

14.0

11.0

Year Ended

December 31, 2022

Constant prepayment rate:

Government-guaranteed mortgage loans

6.7

18.3

4.8

Conventional conforming mortgage loans

7.4

18.4

3.4

Conventional non-conforming mortgage loans

6.0

21.9

3.6

Discount rate:

Government-guaranteed mortgage loans

11.7

12.0

11.5

Conventional conforming mortgage loans

9.7

10.0

9.5

Conventional non-conforming mortgage loans

12.5

14.5

11.5

Year Ended

December 31, 2021

Constant prepayment rate:

Government-guaranteed mortgage loans

6.2

17.1

3.7

Conventional conforming mortgage loans

6.2

18.2

2.8

Conventional non-conforming mortgage loans

6.4

14.5

4.4

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

12.8

14.5

12.0

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

190

The weighted

averages of the

key economic

assumptions that the

Corporation used

in its valuation

model and the

sensitivity of the

current

fair

value

immediate

and

adverse

changes

those

assumptions

for

mortgage

loans

were

follows

the

indicated dates:

December 31,

2023

2022

(In thousands)

Carrying amount of servicing assets

26,941

29,037

Fair value

45,244

44,710

Weighted-average

expected life (in years)

7.79

7.80

Constant prepayment rate (weighted-average annual

rate)

6.27

6.40

Decrease in fair value due to 10% adverse change

886

1,048

Decrease in fair value due to 20% adverse change

1,731

2,054

Discount rate (weighted-average annual rate)

10.68

10.69

Decrease in fair value due to 10% adverse change

1,927

1,925

Decrease in fair value due to 20% adverse change

3,712

3,704

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%

variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change

in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is

calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,

increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

191

NOTE 11 – DEPOSITS

The following table summarizes deposit balances as of the indicated dates:

December 31,

2023

December 31, 2022

(In thousands)

Type of account:

Non-interest-bearing deposit accounts

5,404,121

6,112,884

Interest-bearing checking accounts

3,937,945

3,770,993

Interest-bearing saving accounts

3,596,855

3,902,888

Time deposits

2,833,730

2,250,876

Brokered certificates of deposits ("CDs")

783,334

105,826

Total

16,555,985

16,143,467

The

weighted-average

interest

rate

total

interest-bearing

deposits

December 31,

2023

and

2022

was

2.24

and

1.03

respectively.

December 31,

2023,

the

aggregate

amount

unplanned

overdrafts

demand

deposits

that

were

reclassified

loans

amounted

1.4

million

(2022

1.7

million).

Pre-arranged

overdrafts

lines

credit,

also

reported

loans,

amounted

23.8

million as of December 31, 2023 (2022 - $

24.5

million).

The following table presents the contractual maturities of time deposits, including

brokered CDs, as of December 31,

2023:

Total

(In thousands)

Three months or less

852,660

Over three months to six months

666,652

Over six months to one year

1,280,377

Over one year to two years

542,834

Over two years to three years

72,558

Over three years to four years

86,611

Over four years to five years

92,787

Over five years

22,585

Total

3,617,064

Total

Puerto

Rico

and

U.S.

time

deposits

with

balances

than

$250,000

amounted

1.4

billion

and

1.0

billion

December 31, 2023

and 2022, respectively.

This amount does not

include brokered

CDs that are generally

participated out by

brokers

less

than

the

FDIC

insurance

limit.

December 31,

2023,

unamortized

broker

placement

fees

amounted

1.0

million (2022 - $

0.3

million), which are amortized over the contractual maturity of the brokered CDs under

the interest method.

As of

December 31,

2023, deposit

accounts

issued to

government

agencies amounted

to $

3.2

billion (2022

– $

2.8

billion). These

deposits are insured by the FDIC up to the applicable limits. The uninsured

portions were collateralized by securities and loans with an

amortized cost

of $

3.5

billion (2022 –

3.1

billion) and an

estimated market value

of $

3.1

billion (2022

– $

2.7

billion). In addition

securities

and

loans,

December

31,

2023

and

2022,

the

Corporation

used

175.0

million

and

200.0

million,

respectively,

letters of credit issued by the FHLB as pledges for public

deposits in the Virgin

Islands. As of December 31, 2023 the Corporation

had

2.7

billion of government

deposits in Puerto

Rico (2022 –

2.3

billion), $

449.4

million in the Virgin

Islands (2022 –

442.8

million)

and $

10.2

million in Florida (2022 – $

11.6

million).

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

192

A table showing interest expense on interest-bearing deposits for

the indicated periods follows:

Year Ended

December 31,

2023

2022

2021

(In thousands)

Checking accounts

74,271

15,568

5,776

Saving accounts

25,955

11,191

6,586

Time deposits

68,605

18,102

26,138

Brokered CDs

16,630

1,500

2,982

Total

185,461

46,361

41,482

The

total

interest

expense

on deposits

included

the

amortization

broker

placement

fees

brokered

CDs

amounting

0.3

million, $

0.1

million, and

0.2

million for

2023, 2022

and 2021,

respectively.

Total

interest expense

also included

0.2

million,

0.5

million and $

1.3

million for 2023, 2022 and 2021, respectively,

for the accretion of premiums related

to time deposits assumed in

the BSPR acquisition.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

193

NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

(“REPURCHASE AGREEMENTS”)

Repurchase agreements consisted of the following as of the indicated

dates:

December 31, 2023

December 31, 2022

(In thousands)

Short-term Fixed-rate repurchase agreements

(1) (2)

75,133

(1)

Weighted-average interest rate

4.55

% as of December 31, 2022.

(2)

As of December 31, 2022, the securities underlying such agreements

were delivered to the dealers with which the repurchase

agreements were transacted. In accordance with the master

agreements, in the event of default, repurchase agreements

have a right of set-off against the other party for amounts

owed under the related agreement and any other amount or obligation

owed with respect to any other agreement or transaction between

them. As of December 31, 2022, repurchase agreements were

fully collateralized and not offset in the consolidated

statements of financial condition. See Note 24 - "Derivative Instruments

and Hedging Activities" for information on rights of set-off

associated to economic undesignated hedges.

The following securities were sold under agreements to repurchase as of the indicated date:

As of December 31,

2022

Underlying Securities

Amortized Cost

of Underlying

Securities

Balance of

Borrowing

Approximate

Fair Value of

Underlying

Securities

Weighted Average

Interest Rate of

Security

(Dollars in thousands)

U.S. government-sponsored agencies

60,081

50,134

54,093

0.62

MBS

29,959

24,999

27,010

2.08

Total

90,040

75,133

81,103

Accrued interest receivable

137

The

maximum

aggregate

balance

of repurchase

agreements outstanding

any

month-end

for

the years

ended

December 31,

2023

and

2022

was

173.0

million

and

300.0

million,

respectively.

The

average

balance

during

2023

was

54.6

million

(2022-

194.9

million).

NOTE 13 – ADVANCES

FROM THE FEDERAL HOME LOAN BANK (“FHLB

”)

The following is a summary of the advances from the FHLB as of the indicated dates:

December 31, 2023

December 31, 2022

(In thousands)

Short-term

Fixed

-rate advances from the FHLB

(1)

475,000

Long-term

Fixed

-rate advances from the FHLB

(2)

500,000

200,000

500,000

675,000

(1)

Weighted-average interest rate of

4.56

% as of December 31, 2022.

(2)

Weighted-average interest rate of

4.45

% and

4.25

% as of December 31, 2023 and 2022, respectively.

Advances from the FHLB mature as follows as of the indicated date:

December 31, 2023

(In thousands)

Over one to five years

(1)

500,000

(1) Average remaining term to maturity of

2.49

years.

During 2023, the

Corporation added $

300.0

million of long-term FHLB

advances at an

average cost of

4.59

%, and repaid its

short-

term FHLB advances.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

194

The maximum

aggregate balance

of advances

from the

FHLB outstanding

at any month

end during

the years

ended December

31,

2023 and

2022 was

925.0

million and

675.0

million, respectively.

The total

average balance

of FHLB

advances during

2023 was

541.0

million (2022 - $

179.5

million).

The Corporation

receives advances

and applies

for the

issuance of

letters of

credit from

the FHLB

under an

Advances, Collateral

Pledge, and

Security Agreement

(the “Collateral

Agreement”), which

requires the

Corporation to

maintain a

minimum of

qualifying

mortgage collateral or

U.S. Treasury

or U.S. agencies MBS

collateral, as applicable.

The amount of collateral

required for an

advance

incorporates a

collateral discount

or “haircut,”

which is incorporated

into the member’s

pledge and determined

by the FHLB.

Haircut

refers to the percentage

by which an asset’s

market value is reduced

for the purpose of collateral

levels. As of December

31, 2023 and

2022,

the estimated

value of

specific mortgage

loans pledged

as collateral,

net of

haircut, amounted

to $

1.2

billion and

1.3

billion,

respectively,

computed

the

FHLB

for

collateral

purposes.

December

31,

2023

and

2022,

the

estimated

value

U.S.

government-sponsored agencies’

obligations and U.S.

agencies MBS pledged

as collateral, net

of haircut, amounted

to $

454.0

million

and $

238.1

million, respectively.

As of December

31, 2023, the

Corporation had

additional capacity of

approximately $

978.3

million

on this

credit facility

based on

collateral pledged

at the

FHLB, adjusted

by a

haircut reflecting

the perceived

risk associated

with the

collateral. Advances may be repaid prior to

maturity, in whole or

in part, at the option of the borrower upon

payment of any applicable

fee

specified

the

contract

governing

such

advance.

calculating

the

fee,

due

consideration

given

(i)

all

relevant

factors,

including,

but

not

limited

to,

any

and

all

applicable

costs

repurchasing

and/or

prepaying

any

associated

liabilities

and/or

hedges

entered into with respect to the

applicable advance; (ii) the financial characteristics,

in their entirety,

of the advance being prepaid;

and

(iii),

the

case

adjustable-rate

advances,

the

expected

future

earnings

the

replacement

borrowing

as long

the replacement

borrowing is at

least equal to the

original advance’s

par value and the

replacement borrowing’s

tenor is at least

equal to the remaining

maturity of the prepaid advance.

NOTE 14 – OTHER BORROWINGS

Junior Subordinated Debentures

Junior subordinated debentures, as of the indicated dates, consisted of:

(In thousands)

December 31,

2023

December 31, 2022

Long-term floating rate junior subordinated debentures (FBP Statutory Trust I) (1) (3)

43,143

65,205

Long-term floating rate junior subordinated debentures (FBP Statutory Trust II) (2) (3)

118,557

161,700

183,762

(1)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.75

% over

3-month CME Term SOFR

plus a

0.26161

% tenor spread

adjustment as of December 31,

2023 and

2.75

% over

3-month LIBOR

as of December 31, 2022 (

8.39

% as of December 31, 2023 and

7.49

% as of December 31, 2022).

(2)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.50

% over

3-month CME Term SOFR

plus a

0.26161

% tenor spread

adjustment as of December 31,

2023 and

2.50

% over

3-month LIBOR

as of December 31, 2022 (

8.13

% as of December 31,

2023 and

7.25

% as of December 31, 2022).

(3)

See Note 10 - "Non-Consolidated Variable

Interest Entities

(“VIEs”) and Servicing Assets," for additional information on these

debentures.

Loans Payable

The Corporation

participates in

the Borrower-in-Custody

Program (the

“BIC Program”)

of the

FED. Through

the BIC

Program, a

broad

range

loans

(including

commercial,

consumer,

and

residential

mortgages)

may

pledged

collateral

for

borrowings

through the FED Discount Window.

As of December 31, 2023, pledged collateral that is related

to this credit facility amounted to $

1.5

billion, net

of haircut,

mainly commercial,

consumer,

and residential

mortgage

loans,

which is

fully available

for funding.

The FED

Discount

Window

program

provides

the

opportunity

access

low-rate

short-term

source

funding

high

volatility

market

environment.

In addition,

the Corporation participates

in the FED’s

Bank Term

Funding Program (“BTFP”),

which provides

an additional short-

term source

of funding

until March

11,

2024. Through

the BTFP,

eligible collateral

such as

U.S. Treasuries,

U.S. agency

securities,

and U.S.

agency MBS,

may be

pledged as

collateral and

valued at

its par

value.

As of

December 31,

2023, pledged

collateral that

related to this credit facility amounted to $

2.1

million, which is fully available for funding.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

195

NOTE 15 – EARNINGS PER COMMON

The calculations of earnings per common share for the years ended December 31,

2023, 2022, and 2021 are as follows:

Year

Ended December 31,

2023

2022

2021

(In thousands, except per share information)

Net income

302,864

305,072

281,025

Less: Preferred stock dividends

(2,453)

Less: Excess of redemption value over carrying value of Series A through E

Preferred Stock redeemed

(1,234)

Net income attributable to common stockholders

302,864

305,072

277,338

Weighted-Average

Average common

shares outstanding

176,504

190,805

210,122

Average potential

dilutive common shares

676

1,163

1,178

Average common

shares outstanding - assuming dilution

177,180

191,968

211,300

Earnings per common share:

Basic

1.72

1.60

1.32

Diluted

1.71

1.59

1.31

Earnings

per

common

computed

dividing

net

income

attributable

common

stockholders

the

weighted-average

number of common shares issued and outstanding. Net income attributable

to common stockholders represents net income adjusted for

any preferred

stock dividends,

including any

dividends declared

but not

yet paid,

and any cumulative

dividends related

to the

current

dividend period that have not been declared as of

the end of the period. For 2021, net income attributable

to common stockholders was

also adjusted due

to the one

-time effect

to retained

earnings of the

excess of the

redemption value

paid over the

carrying value of

the

Series

through

Preferred

Stock

redeemed

discussed

Note

–

“Stockholders’

Equity.”

Basic

weighted-average

common

shares outstanding exclude unvested shares of restricted stock that do not contain

non-forfeitable dividend rights.

Potential dilutive

common

shares consist

of unvested

shares of

restricted

stock

and

performance

units (if

any

of the

performance

conditions

are

met

the

end

the

reporting

period)

that

not

contain

non-forfeitable

dividend

equivalent

rights

using the

treasury stock

method. This

method assumes

that proceeds

equal to

the amount

of compensation

cost attributable

to future

services

used

repurchase

the

open

market

the

average

market

price

for

the

period.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock

outstanding

during

the

period

that

result

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock method

are not included

in the computation

dilutive

earnings

per

since

their

inclusion

would

have an

antidilutive

effect

earnings

per

share.

There

were

antidilutive

shares of common stock during the years ended December 31,

2023, 2022 and 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

196

NOTE 16 – STOCK-BASED

COMPENSATION

The Omnibus Plan, which

is effective until May 24,

2026, provides for equity-based

and non-equity-based compensation incentives

(the

“awards”).

The Omnibus

Plan

authorizes

the

issuance of

up to

14,169,807

of common

stock,

subject

to adjustments

for

stock splits,

reorganizations

and other

similar events.

As of

December 31,

2023, there

were

3,153,621

authorized shares

of common

stock

available

for

issuance

under

the

Omnibus

Plan.

The

Corporation’s

Board

Directors,

based

the

recommendation

the

Compensation and Benefits

Committee of the

Board, has the power

and authority to

determine those eligible

to receive awards

and to

establish

the

terms

and

conditions

any

awards,

subject

various

limits

and

vesting

restrictions

that

apply

individual

and

aggregate awards.

Restricted Stock

Under the

Omnibus Plan,

the Corporation

may grant

restricted stock

to plan

participants, subject

to forfeiture

upon the

occurrence

of certain

events until

the dates

specified in

the participant’s

award agreement.

While the

restricted stock

is subject

to forfeiture

and

does

not

contain

non-forfeitable

dividend

rights,

participants

may

exercise

full

voting

rights

with

respect

the

restricted

stock

granted

them.

The

fair

value

the

restricted

stock

granted

was

based

the

market

price

the

Corporation’s

common

stock on

the date

of the

respective grant.

The shares

of restricted

stocks granted

to employees

are subject

to the

following

vesting period:

fifty percent

(

%) of

those shares

vest on

the two-year

anniversary of

the grant

date and

the remaining

% vest

the three-year

anniversary of

the grant

date. The

shares of

restricted stock

granted to

directors are

generally subject

to vesting

on the

one-year

anniversary

the

grant

date.

The

Corporation

issued

522,801

during

the

year

ended

December

31,

2023

connection with restricted stock awards, which were reissued from

treasury shares.

The following table summarizes the restricted stock activity under the Omnibus

Plan during the years ended December 31, 2023,

2022 and 2021:

Year Ended December 31,

2023

2022

2021

Number of

Weighted-

Number of

Weighted-

Number of

Weighted-

shares of

Average

shares of

Average

shares of

Average

restricted

Grant Date

restricted

Grant Date

restricted

Grant Date

stock

Fair Value

stock

Fair Value

stock

Fair Value

Unvested shares outstanding at beginning of year

938,491

9.14

1,148,775

6.61

1,320,723

5.74

Granted (1)

522,801

12.07

327,195

13.21

324,360

11.47

Forfeited

(63,133)

11.36

(15,108)

8.79

(82,486)

6.42

Vested

(508,517)

6.36

(522,371)

6.13

(413,822)

7.69

Unvested shares outstanding at end of year

889,642

12.30

938,491

9.14

1,148,775

6.61

(1)

For the year ended December 31, 2023, includes

28,793

shares of restricted stock awarded to independent directors and

494,008

shares of restricted stock awarded to employees, of

which

33,718

shares were granted to retirement-eligible employees and

thus charged to earnings as of the grant date. For the

year ended December 31, 2022, includes

27,529

shares of

restricted stock awarded to independent directors and

299,666

shares of restricted stock awarded to employees, of which

6,084

shares were granted to retirement-eligible employees and

thus charged to earnings as of the grant date. For the

year ended December 31, 2021, includes

29,291

shares of restricted stock awarded to independent directors

and

295,069

shares of

restricted stock awarded to employees, of which

19,804

shares were granted to retirement-eligible employees and

thus charged to earnings as of the grant date.

For the

years ended

December 31,

2023, 2022

and 2021,

the Corporation

recognized

5.7

million, $

3.7

million and

3.5

million,

respectively,

stock-based

compensation

expense

restricted

stock

awards.

December

31,

2023,

there

was

4.1

million of total unrecognized compensation cost related to

unvested shares of restricted stock that the Corporation expects to recognize

over a weighted average period of

1.6

years.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

197

Performance Units

Under the Omnibus Plan, the Corporation may award

performance units to participants, with each unit representing

the value of one

the

Corporation’s

common

stock.

These awards, which are granted to executives, do not contain non-forfeitable rights to

dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.

On March 16, 2023, the Corporation granted 216,876 performance units to executives. Performance units granted on March 16,

2023 will vest on the third anniversary of the effective date of the award based on actual achievement of two performance metrics

weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the KBW Nasdaq

Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured based upon the

growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring transactions. The

participant may earn 50% of their target opportunity for threshold level performance and up to 150% of their target opportunity for

maximum level performance, based on the individual achievement of each performance goal during a three-year performance cycle.

Amounts between threshold, target and maximum performance will vest in a proportional amount. Performance units granted prior to

March 16, 2023 vest subject only to achievement of a TBVPS goal and the participant may earn only up to 100% of their target

opportunity.

The following table summarizes the

performance units activity under

the Omnibus Plan during the

years ended December 31, 2023,

2022 and 2021:

Year Ended

December 31,

2023

2022

2021

Number

Weighted-

Number

Weighted-

Number

Weighted-

Average

Performance

Grant Date

Performance

Grant Date

Performance

Grant Date

Units

Fair Value

Units

Fair Value

Units

Fair Value

Performance units at beginning of year

791,923

7.36

814,899

7.06

1,006,768

6.16

Additions

(1)

216,876

12.24

166,669

13.15

160,485

11.26

Vested

(2)

(474,538)

4.08

(189,645)

11.16

(304,408)

6.29

Forfeited

(47,946)

7.08

Performance units at end of year

534,261

12.25

791,923

7.36

814,899

7.06

(1)

Units granted during 2023 are subject to the achievement of the Relative TSR and TBVPS performance goals during a three-year performance cycle beginning January 1, 2023 and ending on December 31, 2025. Units

granted during 2022 are subject to the achievement of the TBVPS performance goal during a three-year performance cycle beginning January 1, 2022 and ending on December 31, 2024. Units granted during 2021 are

subject to the achievement of the TBVPS performance goal during a three-year performance cycle beginning January 1, 2021 and ending on December 31, 2023.

(2)

Units vested during 2023 and 2022 are related to performance units granted in 2020 and 2019, respectively, that met certain pre-established targets and were settled with shares of common stock reissued from treasury

shares. Units vested during 2021 are related to performance units granted in 2018 that met certain pre-established targets and were settled with new shares of common stock.

The fair value of the performance units awarded during the years ended December 31, 2023, 2022 and 2021, that was based on the

TBVPS goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the

grant and assuming attainment of 100% of target opportunity. As of December 31, 2023, there have been no changes in management’s

assessment of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to

compensation expense has been recognized. The fair value of the performance units awarded during 2023, that was based on the

Relative TSR component, was calculated using a Monte Carlo simulation. Since the Relative TSR component is considered a market

condition, the fair value of the portion of the award based on Relative TSR is not revised subsequent to grant date based on actual

performance.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

198

The following

table summarizes

the valuation

assumptions used

to calculate

the fair

value of

the Relative

TSR component

of the

performance units granted under the Omnibus Plan during 2023:

Year

Ended

December 31,

2023

Risk-free interest rate

(1)

3.98

Correlation coefficient

77.16

Expected dividend yield

(2)

Expected volatility

(3)

41.37

Expected life (in years)

2.79

(1)

Based on the yield on zero-coupon U.S. Treasury

Separate Trading of Registered Interest and

Principal of Securities as of the grant date.

(2)

Assumes that dividends are reinvested at each ex-dividend date.

(3)

Calculated based on the historical volatility of the Corporation's

stock price with a look-back period equal to the simulation

term using daily stock prices.

For the

years ended

December 31,

2023, 2022

and 2021,

the Corporation

recognized $

2.1

million, $

1.7

million and

2.0

million,

respectively,

of stock-based

compensation expense

related to performance

units. As of

December 31,

2023, there

was $

3.0

million of

total unrecognized compensation

cost related to unvested

performance units that the Corporation

expects to recognize over

a weighted

average period of

1.8

years.

Shares withheld

During 2023,

the Corporation

withheld

289,623

shares (2022

–

205,807

shares; 2021

–

214,374

shares) of

the restricted

stock that

vested during such period

to cover the officers’

payroll and income tax withholding

liabilities; these shares are held as

treasury shares.

The

Corporation

paid

cash

any

fractional

salary

stock

which

officer

was

entitled.

the

consolidated

financial

statements, the Corporation presents shares withheld for tax purposes as common

stock repurchases.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

199

NOTE 17 –

STOCKHOLDERS’

EQUITY

Stock Repurchase Programs

During 2023,

the Corporation

repurchased

14,050,830

shares of

its common

stock at

an average

price of

14.23

for a

total cost

200.0

million,

which

8,969,998

its

common

stock

average

price

13.94

for

total

cost

125.0

million

completed the $

350

million stock repurchase program approved by the Board of Directors on April

27, 2022.

On July

24, 2023,

the Corporation

announced that

its Board

of Directors

approved a

new 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

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

acquire

any

specific

number

and

does

not

have

expiration

date.

The

stock

repurchase

program

may

modified,

suspended,

terminated

any

time

the

Corporation’s

discretion.

During

2023,

the

Corporation

repurchased

5,080,832

common

stock

through

open

market

transactions

average

price

14.76

for

total

cost

approximately

75.0

million

under

this

stock

repurchase

program.

December

31,

2023,

the

Corporation

has

remaining

authorization to repurchase

approximately $

150

million of common

stock. The Corporation’s

holding company has

no operations and

depends

dividends,

distributions

and

other

payments

from

its

subsidiaries

fund

dividend

payments,

stock

repurchases,

and

fund all payments on its obligations, including debt obligations.

Common Stock

The following table shows the changes in shares of common stock outstanding for

the years ended December 31,

2023, 2022 and

2021:

Total

Number of Shares

2023

2022

2021

Common stock outstanding, beginning of year

182,709,059

201,826,505

218,235,064

Common stock repurchased

(1)

(14,340,453)

(19,619,178)

(16,954,841)

Common stock reissued/issued under stock-based compensation

plan

997,339

516,840

628,768

Restricted stock forfeited

(63,133)

(15,108)

(82,486)

Common stock outstanding, end of year

169,302,812

182,709,059

201,826,505

(1)

For 2023, 2022 and 2021, includes

289,623

;

205,807

and

214,374

shares, respectively, of common stock

surrendered to cover plan participants' payroll and income taxes.

For

the

years

ended

December

31,

2023,

2022

and

2021,

total

cash

dividends

declared

common

stock

amounted

99.6

million

0.56

per

share),

88.2

million

0.46

per

share)

and

65.4

million

0.31

per

share),

respectively.

February 8,

2024

, the

Corporation’s

Board declared

a quarterly

cash dividend

of $

0.16

per common

share, which

represents an

increase of

0.02

per common share, or a

% increase, compared to its most recent

quarterly dividend paid in December 2023.

The dividend is payable

March 8, 2024

to shareholders of

record at the

close of business on

February 23, 2024

. The Corporation

intends to continue

to pay

quarterly

dividends

common

stock.

However,

the

Corporation’s

common

stock dividends,

including

the

declaration,

timing,

and

amount, remain subject to consideration and approval by the Corporation’s

Board Directors at the relevant times.

Preferred Stock

The Corporation

has

50,000,000

authorized shares of

preferred stock with

a par value

of $

1.00

, subject to

certain terms. This

stock

may be issued

in series and

the shares of

each series have

such rights and

preferences as are

fixed by the

Board when authorizing

the

issuance of

that particular

series and

are redeemable

at the Corporation’s

option.

shares of preferred

stock were

outstanding as

December 31, 2023 and 2022.

November

30,

2021,

the

Corporation

redeemed

all

its

1,444,146

then

outstanding

Series

through

Preferred

Stock for

its liquidation

value of

per share

totaling $

36.1

million. The

difference

between the

liquidation value

and net

carrying

value was $

1.2

million, which was recorded as

a reduction to retained earnings

in 2021. The redeemed preferred

stock shares were not

listed on any

securities exchange or

automated quotation system.

For the year

ended December 31,

2021, total cash

dividends paid on

shares of preferred stock amounted to $

2.5

million.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

200

Treasury Stock

The following table shows the changes in shares of treasury stock for the years ended

December 31,

2023, 2022 and 2021:

Total

Number of Shares

2023

2022

2021

Treasury stock, beginning of year

40,954,057

21,836,611

4,799,284

Common stock repurchased

14,340,453

19,619,178

16,954,841

Common stock reissued under stock-based compensation plan

(997,339)

(516,840)

Restricted stock forfeited

63,133

15,108

82,486

Treasury stock, end of year

54,360,304

40,954,057

21,836,611

FirstBank Statutory Reserve (Legal Surplus)

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

minimum

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

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.

During the years ended December

31, 2023, 2022, and

2021, the Corporation transferred $

31.1

million, $

30.9

million, and $

28.3

million respectively, to

the legal surplus reserve. FirstBank’s

legal

surplus

reserve,

included

part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted to $

199.6

million as of December 31, 2023 and $

168.5

million as of December 31, 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

201

NOTE 18 – ACCUMULATED

OTHER COMPREHENSIVE LOSS

The following

table presents

the changes

in accumulated

other comprehensive

loss for

the years

ended December

31, 2023,

2022,

and 2021:

Changes in Accumulated Other Comprehensive

Loss by Component

(1)

Year Ended December 31,

2023

2022

2021

(In thousands)

Unrealized net holding losses on available-for-sale

debt securities:

Beginning balance

(805,972)

(87,390)

55,725

Other comprehensive income (loss)

165,420

(718,582)

(143,115)

Ending balance

(640,552)

(805,972)

(87,390)

Adjustment of pension and postretirement

benefit plans:

Beginning balance

1,194

3,391

(270)

Other comprehensive income (loss)

188

(2,197)

3,661

Ending balance

1,382

1,194

3,391

(1) All amounts presented are net of tax.

The following table presents the amounts reclassified out of each component

of accumulated other comprehensive loss for the years

ended December 31, 2023, 2022, and 2021:

Reclassifications Out of Accumulated Other

Comprehensive Loss

Affected Line Item in the Consolidated

Statements of Income

Year Ended December 31,

2023

2022

2021

(In thousands)

Adjustment of pension and postretirement benefit plans:

Amortization of net loss

Other expenses

Total before tax

Income tax expense

(6)

(1)

Total, net of tax

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

202

NOTE 19 – EMPLOYEE BENEFIT PLANS

The Corporation

maintains two frozen

qualified noncontributory

defined benefit pension

plans (the “Pension

Plans”), and

a related

complementary

post-retirement

benefit

plan

(the

“Postretirement

Benefit

Plan”)

covering

medical

benefits

and

life

insurance

after

retirement that it

obtained in the BSPR

acquisition on September

1, 2020. One

defined benefit pension

plan covers substantially

all of

BSPR’s

former employees

who were

active before

January 1,

2007, while

the other

defined benefit

pension plan

covers personnel

institution

previously

acquired

BSPR.

Benefits

are

based

salary

and

years

service.

The

accrual

benefits

under

the

Pension Plans is frozen to all participants.

The

Corporation

requires

recognition

plan’s

overfunded

and

underfunded

status

asset

liability

with

offsetting

adjustment to accumulated other comprehensive loss pursuant to

the ASC Topic 715, “Compensation-Retirement

Benefits.”

The following

table presents

the changes

in projected

benefit obligation

and changes

in plan

assets for

the years

ended December

31, 2023 and 2022:

December 31, 2023

December 31, 2022

(In thousands)

Changes in projected benefit obligation:

Projected benefit obligation at the beginning of year,

defined benefit pension plans

73,508

97,867

Interest cost

3,800

2,614

Actuarial loss (gain)

(1)

1,966

(21,265)

Benefits paid

(5,727)

(5,708)

Projected benefit obligation at the end of year,

pension plans

73,547

73,508

Projected benefit obligation, other postretirement benefit plan

244

182

Projected benefit obligation at the end of year

73,791

73,690

Changes in plan assets:

Fair value of plan assets at the beginning of year

77,189

103,487

Actual return on plan assets - gain (loss)

5,903

(20,590)

Benefits paid

(5,727)

(5,708)

Fair value of pension plan assets at the end of year

(2)

77,365

77,189

Net asset, pension plans

3,818

3,681

Net benefit obligation, other postretirement benefit plan

(244)

(182)

Net asset

3,574

3,499

(1)

For 2022, significant components of the Pension Plans’ actuarial loss

(gain) that changed the benefit obligation were mainly related

to updates in discount rates.

(2)

Other postretirement plan did not contain any assets as of

December 31, 2023 and 2022.

The weighted-average

discount rate

used to

determine

the benefit

obligation

as of

December

31, 2023

and

2022, was

5.14

% and

5.43

respectively.

The

discount

rate

estimated

the

single

equivalent

rate

such

that

the

present

value

the

plan’s

projected

benefit obligation

cash flows

using the

single rate

equals the

present value

of those

cash flows

using the

above mean

actuarial yield

curve.

developing

the

expected

long-term

rate

return

assumption,

the

Corporation

evaluated

input

from

consultant

and

the

Corporation’s

long-term inflation

assumptions and

interest rate

scenarios. Projected

returns are

based on

the same

asset categories

the plan using

well-known broad

indexes. Expected

returns are based

on historical

returns with adjustments

to reflect a

more realistic

future return. The Corporation anticipated

that the Plan’s portfolio

would generate a long-term rate of

return of

5.51

% and

4.80

% as of

December 31, 2023 and 2022. Adjustments are done

by categories, taking into consideration current and future

market conditions. The

Corporation also considered

historical returns on

its plan assets to

review the expected

rate of return. The

investment policy statement

for

the

Pension

Plans

includes

the

following:

(i)

liability

hedging

assets

reduce

funded

status

risk,

(ii)

diversified

return

seeking

assets to reduce

equity risk,

and (iii) establishes

different glidepaths

specific for

each plan

to systematically reduce

risk as

the funded

status improves.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

203

The following

table presents

information

for

the plans

with a

projected

benefit obligation

and accumulated

benefit obligation

excess of plan assets for the years ended December 31, 2023 and 2022:

December 31, 2023

December 31, 2022

(In thousands)

Projected benefit obligation

49,793

48,501

Accumulated benefit obligation

49,793

48,501

Fair value of plan assets

46,801

46,398

The following table presents the components of net periodic cost (benefit)

for the years ended December 31, 2023, 2022, and 2021:

Affected Line Item

in the Consolidated

Year Ended December 31,

Statements of Income

2023

2022

2021

(In thousands)

Net periodic benefit, pension plans:

Interest cost

Other expenses

3,800

2,614

2,473

Expected return on plan assets

Other expenses

(3,543)

(4,158)

(4,523)

Net periodic cost (benefit), pension plans

257

(1,544)

(2,050)

Net periodic cost, postretirement plan

Other expenses

Net periodic cost (benefit)

282

(1,536)

(2,044)

The following table presents the

weighted-average assumptions used to

determine the net periodic cost (benefit)

for the pension and

other postretirement benefit plans for the years ended December 31, 2023,

2022, and 2021:

Year Ended December 31,

2023

2022

2021

Discount rate

5.43%

2.77%

2.36%

Expected return on plan assets

4.80%

4.43%

5.99%

The following table presents the changes in pre-tax accumulated other comprehensive

income of the Pension Plans and

Postretirement Benefit Plan for the years ended December 31, 2023, 2022,

and 2021:

Year Ended December 31,

2023

2022

2021

(In thousands)

Accumulated other comprehensive income (loss) at beginning

of year, pension plans

1,974

5,457

(404)

Net gain (loss)

395

(3,483)

5,861

Accumulated other comprehensive income at end of year, pension plans

2,369

1,974

5,457

Accumulated other comprehensive loss at end of year, postretirement plan

(155)

(61)

(29)

Accumulated other comprehensive income at end of year

2,214

1,913

5,428

The following

are the

pre-tax amounts

recognized in

accumulated other

comprehensive income

for the

years ended

December 31,

2023, 2022, and 2021:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Net actuarial gain (loss), pension plans

395

(3,483)

5,861

Net actuarial loss, other postretirement benefit plan

(111)

(35)

(2)

Amortization of net loss

Net amount recognized

301

(3,515)

5,860

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

204

The Pension Plans asset allocations by asset category are as follows as of the indicated

dates:

December 31, 2023

December 31, 2022

Asset category

Investment in funds

97%

Other

100%

December

31,

2023

and

2022,

substantially

all

the

plan

assets

77.4

million

and

77.2

million,

respectively,

were

invested in common collective trusts, which primarily consist of equity securities,

MBS, corporate bonds and U.S. Treasuries.

Determination of Fair Value

The following is a description of the valuation inputs and techniques

used to measure the fair value of pension plan assets:

Investment in Funds

Investment in common collective

trusts have been measured

at fair value using

the net asset value per

unit as

a practical

expedient and,

accordingly,

have not

been

classified in

the fair

value hierarchy.

Fair value

is based

on the

calculated

net

asset value of shares held by the Plan as reported by the sponsor of the funds.

Interest-Bearing

Deposits

Interest-bearing

deposits consist

money

market

accounts with

short-term

maturities and,

therefore,

the carrying value approximates fair value.

The Corporation does not expect to contribute to the Pension Plans during

2024.

The Corporation’s

investment policy

with respect

to the

Corporation’s

Pension

Plans is

to optimize,

without undue

risk, the

total

return

on investment

of the

Plan assets

after inflation,

within

a framework

of prudent

and reasonable

portfolio

risk. The

investment

portfolio

diversified

multiple

asset

classes

reduce

portfolio

risk,

and

assets

may

shifted

between

asset

classes

reduce

volatility when

warranted by projections

of the economic

and/or financial

market environment,

consistent with

Employee Retirement

Income

Security Act

of 1974,

as amended

(ERISA).

As circumstances

and

market conditions

change,

the Corporation’s

target

asset

allocations

may

amended

to reflect

the

most

appropriate

distribution

given

the new

environment,

consistent with

the

investment

objectives.

Expected future benefit payments for the plans during the next ten years

are as follows:

Amount

(In thousands)

2024

6,386

2025

6,060

2026

6,071

2027

5,923

2028

5,692

2029 through 2033

27,144

57,276

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

205

Defined Contribution Plan

addition,

FirstBank

provides

contributory

retirement

plans

pursuant

Section 1081.01

the

Tax

Code

for

Puerto

Rico

employees

and

Section 401(k)

the

U.S. Internal

Revenue

Code

for

USVI

and

U.S. employees

(the

“Plans”).

Eligible

employees

may participate in the Plans after

completion of

three months

of service for purposes of making

elective deferral contributions and

one

year

of service

with at

least

1,000

hours of

service for

purposes of

sharing in

the Bank’s

matching, qualified

matching, and

qualified

non-elective

contributions.

The

Bank

contributes

matching

contribution

fifty

cents

for

every

dollar

the

first

the

participants’

eligible

compensation

that

participant

contributes

the

Plan

a pre-tax basis.

The matching contribution of fifty

cents for every dollar of the employee’s contribution is comprised of: (i) twenty-five cents for every dollar of the employee’s

contribution up to 6% of the employee’s eligible compensation to be paid to the Plan as of each bi-weekly payroll; and (ii) an

additional twenty-five cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be

deposited as a lump sum subsequent to the Plan Year.

Puerto Rico

employees were

permitted to

contribute up

to $

15,000

for each

the years ended December 31,

2023, 2022 and 2021

(USVI and U.S. employees -

22,500

for 2023, $

20,500

for 2022 and $

19,500

for

2021).

Additional

contributions

the

Plans

may

voluntarily

made

the

Bank

determined

its

Board

Directors.

additional

discretionary

contributions were

made for

the years

ended

December 31,

2023, 2022,

and 2021.

The Bank

had

total plan

expenses of $

3.4

million for the year ended December 31, 2023 (2022 - $

3.5

million; 2021 - $

3.5

million).

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

206

NOTE 20 – OTHER NON-INTEREST INCOME

A detail of other non-interest income is as follows for the indicated periods:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Non-deferrable loan fees

4,412

3,167

2,990

Mail and cable transmission commissions

3,289

3,100

3,116

Gain from insurance proceeds

379

550

Net gain (loss) on equity securities

(522)

(102)

Insurance referrals commissions

2,722

2,660

1,162

Gain from sales of fixed assets

(1)

3,514

924

Gain recognized from legal settlement

3,600

Other

7,851

6,521

4,681

Total

25,788

15,850

12,429

(1) See Note 6 - "Premises and Equipment" for additional

information related to gains from sales of fixed assets.

NOTE 21 – OTHER NON-INTEREST EXPENSES

A detail of other non-interest expenses is as follows for the indicated periods:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Supplies and printing

1,543

1,505

1,830

Amortization of intangible assets

7,735

8,816

11,407

Servicing and processing fees

5,342

5,343

5,121

Insurance and supervisory fees

9,385

9,354

9,098

Provision for operational losses

3,305

2,518

5,069

Net periodic cost (benefit), pension and other postretirement plans

282

(1,536)

(2,044)

Other

6,074

4,662

4,942

Total

33,666

30,662

35,423

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

207

NOTE 22 –

INCOME TAXES

The Corporation

is subject to Puerto

Rico income tax

on its income

from all sources.

Under the PR Tax

Code, the Corporation

and

its subsidiaries are treated as separate taxable entities and

are not entitled to file consolidated tax returns. However,

certain subsidiaries

that

are

organized

as limited

liability

companies

with

partnership

election

are

treated

as pass-through

entities

for

Puerto

Rico

tax

purposes.

The

Corporation

conducts

business

through

certain

entities

that

have

special

tax

treatments,

including

doing

business

through an

IBE unit

of the

Bank and

through FirstBank

Overseas Corporation,

each of

which are

generally exempt

from Puerto

Rico

income taxation

under the

International Banking

Entity Act

of Puerto

Rico (“IBE

Act”), and

through a

wholly-owned subsidiary

that

engages in certain Puerto Rico qualified investing and lending activities that

have certain tax advantages under Act 60 of 2019.

Under

the

PR Tax

Code,

the Corporation

is generally

not entitled

utilize

losses from

one

subsidiary

to offset

gains in

another

subsidiary.

Accordingly,

in order

obtain

tax benefit

from

net

operating

loss (“NOL”),

particular

subsidiary

must be

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

Pursuant

the

Tax

Code,

the

carry-

forward period for NOLs

incurred during taxable years

that commenced after December

31, 2004 and ended before

January 1, 2013 is

12 years; for NOLs incurred

during taxable years commencing

after December 31, 2012, the carryover

period is 10 years. The PR

Tax

Code

provides

dividend

received

deduction

100

dividends

received

from

“controlled”

subsidiaries

subject

taxation

Puerto

Rico

and

dividends

received

from

other

taxable

domestic

corporations.

addition,

the

IBE

unit

the

Bank

and

FirstBank

Overseas

Corporation,

which

were

created

under

the

IBE

Act,

have

exemption

net

income

derived

from

specific

activities identified in such Act. An IBE that operates as a unit of a bank

pays income taxes at the corporate standard rates to the extent

that the IBE’s net income exceeds

% of the bank’s total net taxable income.

Income

tax

expense

also

includes

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

Puerto

Rico

corporation, FirstBank

is treated as

a foreign corporation

for U.S. and

USVI income tax

purposes and is

generally subject to

U.S. and

USVI income

tax only

on its

income from

sources within

the U.S.

and USVI

or income

effectively

connected with

the conduct

of a

trade or business in those jurisdictions.

Such tax paid in the U.S. and USVI

is also creditable against the Corporation’s

Puerto Rico tax

liability, subject to certain

conditions and limitations.

The components of income tax expense are summarized below for the indicated periods:

Year

Ended December 31,

2023

2022

2021

(In thousands)

Current income tax expense

88,467

88,296

28,469

Deferred income tax expense

6,105

54,216

118,323

Total income

tax expense

94,572

142,512

146,792

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

208

The Corporation maintains an effective tax rate lower than the Puerto

Rico maximum statutory tax rate of

37.5

%. The

differences between the income tax expense applicable to income before

the provision for income taxes and the amount computed

by applying the statutory tax rate in Puerto Rico were as follows for the indicated periods:

Year Ended December

31,

2023

2022

2021

Amount

% of Pretax

Income

Amount

% of Pretax

Income

Amount

% of Pretax

Income

(Dollars in thousands)

Computed income tax at statutory rate

149,038

37.5

167,844

37.5

160,431

37.5

Federal and state taxes

10,008

2.4

10,268

2.2

7,014

1.6

Benefit of net exempt income

(35,153)

(8.8)

(31,266)

(7.0)

(20,717)

(4.8)

Disallowed NOL carryforward resulting from net exempt income

(1)

14,221

3.2

8,791

2.0

Deferred tax valuation allowance

(1)

(8,410)

(1.9)

(13,572)

(3.2)

Share-based compensation windfall

(2,134)

(0.5)

(1,492)

(0.3)

(1,044)

(0.2)

Preferential tax treatment on qualified investing and lending activities

(19,125)

(4.8)

(4,500)

(1.0)

Other permanent differences

(5,138)

(1.3)

(3,147)

(0.7)

(1,185)

(0.3)

Tax return to provision adjustments

(1,709)

(0.4)

(519)

(0.1)

(406)

(0.1)

Other-net

(1,215)

(0.3)

(487)

(0.1)

7,480

1.7

Total income tax expense

94,572

23.8

142,512

31.8

146,792

34.2

(1)

During 2022 the Corporation fully utilized certain NOLs which under the PR Tax Code were disallowed for carryforward purposes; therefore, there was no adjustment in 2023 in the amount of disallowed NOL

carryforward and any related deferred tax valuation allowance.

Deferred income taxes reflect the net tax effects of temporary differences

between the carrying amounts of assets and liabilities for

financial reporting purposes and their tax bases. Significant components

of the Corporation's deferred tax assets and liabilities as of

December 31, 2023 and 2022 were as follows:

As of December 31,

2023

2022

(In thousands)

Deferred tax asset:

NOL and capital loss carryforwards

48,633

72,485

Allowance for credit losses

102,005

104,014

Alternative Minimum Tax

credits available for carryforward

39,898

40,823

Unrealized loss on OREO valuation

6,360

6,462

Settlement payment-closing agreement

7,031

Legal and other reserves

4,059

6,345

Reserve for insurance premium cancellations

824

781

Differences between the assigned values and tax bases of assets

and liabilities recognized in purchase business combinations

6,690

5,665

Unrealized loss on available-for-sale debt securities, net

82,944

100,776

Other

7,833

7,722

Total gross deferred tax assets

299,246

352,104

Deferred tax liabilities:

Servicing assets

9,002

9,786

Pension Plan assets

832

719

Other

509

Total gross deferred tax liabilities

9,931

11,014

Valuation

allowance

(139,188)

(185,506)

Net deferred tax asset

150,127

155,584

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

209

Accounting

for

income

taxes

requires

that

companies

assess

whether

valuation

allowance

should

recorded

against

their

deferred

tax

asset

based

assessment

the

amount

the

deferred

tax

asset

that

“more

likely

than

not”

realized.

Valuation

allowances are

established,

when necessary,

to reduce

deferred tax

assets to

the amount

that is

more likely

than not

to be

realized. Management

assesses the valuation

allowance recorded

against deferred

tax assets at

each reporting

date. The determination

of whether a

valuation allowance for

deferred tax assets is

appropriate is subject

to considerable judgment

and requires the

evaluation

positive

and

negative

evidence

that

can

objectively

verified.

Consideration

must

given

all

sources

taxable

income

available to realize

the deferred tax asset,

including, as applicable,

the future reversal

of existing temporary

differences, future

taxable

income forecasts exclusive of the reversal of temporary

differences and carryforwards, and tax planning

strategies. In estimating taxes,

management assesses

the relative

merits and

risks of

the appropriate

tax treatment

of transactions

considering statutory,

judicial, and

regulatory guidance.

December

31,

2023,

the

Corporation

had

deferred

tax

asset

150.1

million,

net

valuation

allowance

139.2

million, compared

to a deferred

tax asset of

155.6

million, net of

a valuation allowance

of $

185.5

million, as of

December 31, 2022.

The net

deferred tax

asset of

the Corporation’s

banking subsidiary,

FirstBank, amounted

to $

150.1

million as

of December

31, 2023,

net of a valuation

allowance of $

111.4

million, compared to

a net deferred

tax asset of $

155.6

million, net of

a valuation allowance

149.5

million,

December

31,

2022.

The

decrease

the

valuation

allowance

was

primarily

changes

the

market

value of

available-for-sale

debt securities

and the

expiration of

capital loss

carryforwards,

both which

resulted in

an equal

change in

the

deferred

tax

asset

without

impacting

earnings.

The

Corporation

maintains

full

valuation

allowance

for

its

deferred

tax

assets

associated with capital loss carryforwards, NOL carryforwards, and unrealized

losses of available-for-sale debt securities.

Management’s

estimate

future

taxable

income

based

internal

projections

that

consider

historical

performance,

multiple

internal scenarios and

assumptions, as well as

external data that

management believes is

reasonable. If events

are identified that

affect

the Corporation’s

ability to utilize

its deferred tax

assets, the analysis

will be updated

to determine if

any adjustments to

the valuation

allowance

are

required.

actual

results

differ

significantly

from

the

current

estimates

future

taxable

income,

even

caused

adverse

macro-economic

conditions,

the

remaining

valuation

allowance

may

need

increased.

Such

increase

could

have

material adverse effect on the Corporation’s

financial condition and results of operations.

As of December

31, 2023, approximately

253.9

million of the

deferred tax

assets of the

Corporation are

attributable to temporary

differences

tax

credit

carryforwards

that

have

expiration

date,

compared

279.9

million

2022.

The

valuation

allowance

attributable to

FirstBank’s

deferred tax

assets of $

111.4

million as

of December

31, 2023

is related

to the

change in

the market

value

of available-for-sale debt securities, NOLs attributable

to the Virgin

Islands jurisdiction, and capital loss carryforwards. The remaining

balance of $

27.8

million of the

Corporation’s

deferred tax asset

valuation allowance

non-attributable to

FirstBank is mainly

related to

NOLs at the

holding company

level. The

Corporation will

continue to

provide a valuation

allowance against

its deferred

tax assets in

each applicable tax jurisdiction until the need for

a valuation allowance is eliminated. The need for a valuation

allowance is eliminated

when

the Corporation

determines that

it is

likely than

not the

deferred

tax assets

will be

realized.

The ability

to recognize

the

remaining deferred tax assets that

continue to be subject to

a valuation allowance will be

evaluated on a quarterly basis

to determine if

there are any significant

events that would affect

the ability to utilize

these deferred tax assets. As

of December 31,

2023, of the $

48.6

million of NOL and capital loss carryforwards

deferred tax assets, $

35.4

million, which are fully valued, have

expiration dates ranging

from year

2024 through

year 2037.

From this

amount,

approximately

15.3

million expires

in year

2024 and

are not

expected to

realized.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

the

U.S.

Internal

Revenue Code

(“Section 382”)

covering a

comprehensive period

and concluded

that an

ownership

change had

occurred during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

than

would

have

incurred

the

absence of such limitation. The Corporation has mitigated

to an extent the adverse effects associated with the

Section 382 limitation as

any

such

tax

paid

the

U.S.

USVI

can

creditable

against

Puerto

Rico

tax

liabilities

taken

deduction

against

taxable

income. However,

our ability

to reduce

our Puerto

Rico tax

liability through

such a

credit or

deduction depends

on our

tax profile

each annual

taxable period,

which is

dependent on

various factors.

For 2023,

2022, and

2021,

FirstBank incurred

current income

tax

expense of approximately

9.9

million, $

10.3

million, and $

6.8

million, respectively,

related to its

U.S. operations.

The limitation did

not impact the USVI operations in 2023, 2022, and 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

210

The Corporation

accounts for uncertain

tax positions under

the provisions of

ASC Topic

740. The Corporation’s

policy is to

report

interest and penalties related to unrecognized

tax positions in income tax expense.

As of December 31, 2023, the Corporation

had $

0.2

million of

accrued interest

and penalties

related to

uncertain tax

positions in

the amount

of $

0.8

million that

it acquired

from BSPR,

which,

recognized,

would

decrease

the

effective

income

tax

rate

future

periods.

During

2023,

0.3

million

benefit

was

recognized as a

result of the

expiration of uncertain

tax positions acquired

from BSPR.

The amount of

unrecognized tax benefits

may

increase

decrease

the

future

for

various

reasons,

including

adding

amounts

for

current

tax

year

positions,

expiration

open

income

tax returns

due

to the

statute of

limitations,

changes

in management’s

judgment about

the level

of uncertainty,

the status

examinations,

litigation

and

legislative activity,

and

the addition

or elimination

of uncertain

tax positions.

The statute

limitations

under the

PR Tax

Code is

four years

after a

tax return

is due or

filed, whichever

is later; the

statute of

limitations for

U.S. and

USVI

income

tax

purposes

three

years

after

tax

return

due

filed,

whichever

later.

The

completion

audit

the

taxing

authorities

the

expiration

the

statute

limitations

for

given

audit

period

could

result

adjustment

the Corporation’s

liability for

income taxes. Any

such adjustment could

be material to

the results of

operations for any

given quarterly

or annual period

based, in part, upon

the results of operations

for the given period.

For U.S. and USVI

income tax purposes, all

tax years subsequent

2019 remain open to examination. For Puerto Rico tax purposes, all tax years

subsequent to 2018 remain open to examination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

211

NOTE 23

–

OPERATING

LEASES

The

Corporation

accounts

for

its

leases

accordance

with

ASC

842

“Leases”

(“ASC

Topic

842).

The

Corporation’s

operating

leases are primarily

related to the

Corporation’s

branches. Our

leases mainly have

terms ranging

from

two years

30 years

, some of

which

include

options

extend

the

leases

for

ten years

Liabilities

make

future

lease

payments

are

recorded

accounts

payable and

other liabilities,

while ROU

assets are

recorded in

other assets

in the

Corporation’s

consolidated statements

of financial

condition. As of December 31, 2023 and 2022, the Corporation

did not classify any of its leases as a finance lease.

Operating lease cost for the

year ended December 31, 2023

amounted to $

17.3

million (2022 - $

18.4

million; 2021 - $

18.2

million),

and is recorded in occupancy and equipment in the consolidated

statements

of income.

Supplemental balance sheet information related to leases was as follows as of the

indicated dates:

As of December 31,

2023

2022

(Dollars in thousands)

ROU asset

68,495

78,855

Operating lease liability

71,419

81,954

Operating lease weighted-average remaining lease term (in years)

7.0

7.5

Operating lease weighted-average discount rate

2.63%

2.37%

Generally,

the

Corporation

cannot

practically

determine

the interest

rate

implicit

the lease.

Therefore,

the Corporation

uses

its

incremental

borrowing

rate

the

discount

rate

for

the

lease.

See

Note

–

“Nature

Business

and

Summary

Significant

Accounting Policies” for information on how the Corporation determines

its incremental borrowing rate.

Supplemental cash flow information related to leases was as follows:

Year Ended

December 31,

2023

2022

2021

(In thousands)

Operating cash flow from operating leases

(1)

17,307

18,202

19,328

ROU assets obtained in exchange for operating lease liabilities

(2) (3)

4,960

5,744

5,833

(1)

Represents cash paid for amounts included in the measurement of

operating lease liabilities.

(2)

Represents non-cash activity and, accordingly,

is not reflected in the consolidated statements of cash flows.

(3)

For the years ended December 31, 2023, 2022 and 2021 excludes

0.1

million, $

3.0

million, and $

1.3

million, respectively, of lease terminations.

Maturities under operating lease liabilities as of December 31, 2023,

were as follows:

Amount

(In thousands)

2024

17,000

2025

15,942

2026

14,839

2027

6,768

2028

5,507

2029 and after

19,274

Total lease payments

79,330

Less: imputed interest

(7,911)

Total present value

of lease liability

71,419

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

212

NOTE 24 – DERIVATIVE

INSTRUMENTS AND HEDGING ACTIVITIES

One of

the market

risks facing

the Corporation

is interest

rate risk,

which includes

the risk that

changes in

interest rates

will result

in changes in the value of

the Corporation’s assets or

liabilities and will adversely

affect the Corporation’s

net interest income from its

loan

and

investment

portfolios.

The

overall

objective

the

Corporation’s

interest

rate

risk

management

activities

reduce

the

variability of earnings caused by changes in interest rates.

As of

December 31,

2023 and

2022, all

derivatives held

by the

Corporation were

considered economic

undesignated hedges.

The

Corporation records these undesignated hedges at fair value with the

resulting gain or loss recognized in current earnings.

The following summarizes the principal derivative activities used by

the Corporation in managing interest rate risk:

Interest Rate

Cap Agreements

– Interest rate cap

agreements provide the right

to receive cash if

a reference interest rate rises

above

a contractual rate. The value of

the interest rate cap increases as the

reference interest rate rises. The Corporation

enters into interest

rate cap agreements for protection from rising interest rates.

Forward

Contracts

–

Forward

contracts

are

primarily

sales

to-be-announced

(“TBA”)

MBS

that

will

settle

over

the

standard

delivery

date

and

not

qualify

“regular

way”

security

trades.

Regular-way

security

trades

are

contracts

that

have

net

settlement provision and no market

mechanism to facilitate net settlement

and that provide for delivery

of a security within the

time

frame

generally

established

regulations

conventions

the

marketplace

exchange

which

the

transaction

being

executed.

The forward

sales are

considered

derivative

instruments

that need

to be

marked

to market.

The Corporation

uses these

securities

economically

hedge

the

FHA/VA

residential

mortgage

loan

securitizations

the mortgage

banking

operations.

The

Corporation

also

reports

as forward

contracts

the mandatory

mortgage

loan

sales commitments

that

it enters

into with

GSEs that

require or permit net settlement via a pair-off

transaction or the payment of a pair-off fee.

Interest

Rate

Lock

Commitments

–

Interest

rate

lock

commitments

are

agreements

under

which

the

Corporation

agrees to

extend

credit

borrower

under

certain

specified

terms

and

conditions

which

the

interest

rate

and

the

maximum

amount

the

residential

mortgage

loan

are

set

prior

funding.

Under

the

agreement,

the

Corporation

commits

lend

funds

potential

borrower, generally on a fixed rate basis, regardless

of whether interest rates change in the market.

Interest

Rate

Swaps

–

interest

rate

swap

agreement

between

two

entities

exchange

cash

flows

the

future.

The

agreements consist

of the

Corporation offering

borrower-facing

derivative products

using a

“back-to-back”

structure in

which the

borrower-facing

derivative

transaction is

paired with

an identical,

offsetting

transaction with

an approved

dealer-counterparty.

using

a back-to-back

trading structure,

both

the commercial

borrower

and

the Corporation

are largely

insulated

from market

risk

and volatility.

The agreements

set the

dates on

which the

cash flows

will be

paid and

the manner

in which

the cash

flows will

calculated.

satisfy

the

needs

its

customers,

the

Corporation

may

enter

into

non-hedging

transactions.

these

transactions,

the

Corporation generally participates as

a buyer in one

of the agreements and

as a seller in the

other agreement under

the same terms and

conditions.

In addition, the Corporation

enters into certain contracts

with embedded derivatives that

do not require separate accounting

as these

are clearly and closely

related to the economic

characteristics of the host

contract. When the embedded

derivative possesses economic

characteristics that are not clearly and closely related

to the economic characteristics of the host contract,

it is bifurcated, carried at fair

value, and designated as a trading or non-hedging derivative instrument.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

213

The following table summarizes for derivative instruments their notional

amounts, fair values and location in the consolidated

statements of financial condition as of the indicated dates:

Asset Derivatives

Liability Derivatives

Notional Amounts

(1)

Statements of Financial

Condition Location

Fair Value

Statements of Financial Condition

Location

Fair Value

December 31,

2023

2022

2023

2022

2023

2022

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

8,969

9,290

Other assets

283

313

Accounts payable and other liabilities

255

278

Written interest rate cap agreements

14,500

Other assets

Accounts payable and other liabilities

197

Purchased interest rate cap agreements

14,500

Other assets

199

Accounts payable and other liabilities

Interest rate lock commitments

2,252

3,225

Other assets

Accounts payable and other liabilities

Forward Contracts:

Sales of TBA GNMA MBS pools

7,000

11,000

Other assets

Accounts payable and other liabilities

18,221

52,515

341

633

317

476

(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.

The following table summarizes the effect of derivative

instruments on the consolidated statements of income for the indicated

periods:

Gain (Loss)

Location of Gain (Loss)

Year Ended

on Derivatives Recognized in

December 31,

Statements of Income

2023

2022

2021

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

Interest income - loans

(7)

Written and purchased interest rate cap agreements

Interest income - loans

(1)

Interest rate lock commitments

Mortgage banking activities

(74)

(322)

(687)

Forward contracts:

Sales of TBA GNMA MBS pools

Mortgage banking activities

(119)

135

114

Forward loan sales commitments

Mortgage banking activities

(20)

Total loss on derivatives

(201)

(177)

(549)

Derivative

instruments

are

subject

market

risk.

the

case

with

investment

securities,

the

market

value

derivative

instruments

is largely

function

the financial

market’s

expectations

regarding

the future

direction

of interest

rates.

Accordingly,

current market

values are

not necessarily

indicative of

the future

impact of

derivative instruments

on earnings.

This will

depend, for

the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations

for rates in the future.

As of

December 31,

2023 and

2022, the

Corporation had

not entered

into any

derivative instrument

containing credit

-risk-related

contingent features.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

214

Credit and Market Risk of Derivatives

The

Corporation

uses

derivative

instruments

manage

interest

rate

risk.

using

derivative

instruments,

the

Corporation

exposed to credit and market risk.

If the

counterparty fails

to perform,

credit risk

is equal

to the

extent of

the Corporation’s

fair value

gain on

the derivative.

When

the fair value of

a derivative instrument contract

is positive, this generally

indicates that the counterparty

owes the Corporation which,

therefore, creates a credit

risk for the Corporation.

When the fair value

of a derivative instrument

contract is negative, the

Corporation

owes the counterparty.

The Corporation minimizes

its credit risk in

derivative instruments by

entering into transactions with

reputable

broker

dealers

(

i.e.,

financial

institutions)

that

are

reviewed

periodically

the

Management

Investment

and

Asset

Liability

Committee

of the

Corporation

(the “MIALCO”)

and

by the

Corporation’s

Board

of Directors.

The Corporation

also has

a policy

requiring

that

all

derivative

instrument

contracts

governed

International

Swaps

and

Derivatives

Association

Master

Agreement, which

includes a

provision for

netting. The

Corporation has

a policy

of diversifying

derivatives counterparties

to reduce

the

consequences

counterparty

default.

The

cumulative

mark-to-market

effect

credit

risk

the

valuation

derivative

instruments in 2023, 2022, and 2021 was immaterial.

Market risk is

the adverse effect

that a change

in interest rates

or implied volatility

rates has on

the value of

a financial instrument.

The Corporation

manages the

market risk

associated with

interest rate

contracts by

establishing and

monitoring limits

as to

the types

and degree of risk that may be undertaken.

accordance

with

the

master

agreements,

the

event

default,

each

party

has

right

set-off

against

the

other

party

for

amounts

owed

under

the

agreement

and

any

other

amount

obligation

owed

with

respect

any

other

agreement

transaction

between

them.

As of

December

31, 2023

and

2022,

derivatives were

overcollateralized.

See Note

–

“Securities

Sold

Under

Agreements

Repurchase

(“Repurchase

Agreements”)”

for

information

rights

set-off

associated

assets

sold

under

agreements to repurchase.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

215

NOTE 25 –

FAIR VALUE

Fair Value

Measurement

ASC Topic

820, “Fair

Value

Measurement,”

defines fair

value as

the exchange

price that

would be

received for

an asset

or paid

transfer

liability

(an

exit

price)

the

principal

most

advantageous

market

for

the

asset

liability

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

fair value

hierarchy for

classifying assets

and

liabilities, which is based on

whether the inputs to

the valuation techniques used

to measure fair value are

observable or unobservable.

One of three levels of inputs may be used to measure fair value:

Level 1

Valuations

Level

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

luations of

Level 2 assets

and liabilities

are based on

observable inputs

other than Level

1 prices, such

as quoted

prices for similar assets or liabilities, or other inputs that are

observable or can be corroborated by observable market

data for substantially the full term of the assets or liabilities.

Level 3

luations of Level 3 assets and

liabilities are based on unobservable

inputs that are supported by

little or no market

activity and

are significant to

the fair value

of the assets

or liabilities. Level

3 assets and

liabilities include financial

instruments

whose value

is determined

by using

pricing models

for

which

the determination

of fair

value

requires

significant management judgment as to the estimation.

Following is a

description of the

valuation methodologies

used for instruments

measured at fair

value on a

recurring basis, as

well as

the classification of

such instruments pursuant

to the fair value

hierarchy.

There were no

transfers of assets and

liabilities measured

fair value between Level 1 and Level 2 measurements during the years

ended December 31, 2023 and 2022.

Financial Instruments Recorded at Fair Value

on a Recurring Basis

Debt securities available for sale and marketable equity securities held at fair value

The fair

value of

investment securities

was based

on unadjusted

quoted market

prices (as

is the

case with

U.S. Treasury

securities

and equity securities with

readily determinable fair values),

when available (Level 1),

or market prices for comparable

assets (as is the

case with

U.S. agencies

MBS and

U.S. agency

debt securities)

that are

based on

observable market

parameters, including

benchmark

yields,

reported

trades,

quotes

from

brokers

dealers,

issuer

spreads,

bids,

offers

and

reference

data,

including

market

research

operations, when

available (Level

2). Observable

prices in

the market

already consider

the risk

of nonperformance.

If listed

prices or

quotes are

not available, fair

value is based

upon discounted

cash flow models

that use unobservable

inputs due to

the limited market

activity of the instrument, as is the case with certain private label MBS held by the

Corporation (Level 3).

Derivative instruments

The fair

value of

most of

the Corporation’s

derivative

instruments is

based on

observable

market parameters

(Level 2)

and takes

into consideration

the credit

risk component

of paying

counterparties, when

appropriate. On

interest rate

caps, only

the seller's

credit

risk is considered. The Corporation

valued the interest rate swaps and

caps using a discounted cash flow

approach based on the related

reference rate for each cash flow.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

216

Assets and liabilities measured at fair value on a recurring basis are summarized below as of

December 31,

2023 and 2022:

As of December 31,

2023

As of December 31, 2022

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Debt securities available for sale:

U.S. Treasury securities

135,393

138,875

Noncallable U.S. agencies debt securities

433,437

389,787

Callable U.S. agencies debt securities

1,874,960

1,963,566

MBS

2,779,994

4,785

(1)

2,784,779

3,098,797

5,794

(1)

3,104,591

Puerto Rico government obligations

1,415

2,201

Other investments

500

Equity securities

4,893

4,861

Derivative assets

341

633

Liabilities:

Derivative liabilities

317

476

(1) Related to private label MBS.

The table

below presents

a reconciliation

of the

beginning and

ending balances

of all

assets measured

at fair

value on

a recurring

basis using significant unobservable inputs (Level 3) for the years ended

December 31, 2023, 2022, and 2021:

Securities Available for Sale

(1)

Level 3 Instruments Only

2023

2022

2021

(In thousands)

Beginning balance

8,495

11,084

11,977

Total (losses) gains:

Included in other comprehensive income (loss) (unrealized)

(750)

(401)

1,281

Included in earnings (unrealized)

(2)

(20)

434

136

Purchases

1,000

Other

(3)

(1,525)

(2,622)

(3,310)

Ending balance

6,200

8,495

11,084

(1)

Amounts mostly related to private label MBS.

(2)

Changes in unrealized gains included in earnings were recognized within

provision for credit losses - expense (benefit) and relate

to assets still held as of the reporting date.

(3)

Mainly includes principal repayments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

217

The tables below present quantitative information for significant assets measured at fair

value on a recurring basis using

significant unobservable inputs (Level 3) as of December 31,

2023 and 2022:

December 31,

2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

4,785

Discounted cash flows

Discount rate

16.1%

Prepayment rate

0.0%

6.9%

3.7%

Projected cumulative loss rate

0.1%

10.9%

4.2%

Puerto Rico government obligations

1,415

Discounted cash flows

Discount rate

14.1%

Projected cumulative loss rate

25.8%

December 31, 2022

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

5,794

Discounted cash flows

Discount rate

16.2%

Prepayment rate

1.5%

15.2%

11.8%

Projected cumulative loss rate

0.3%

15.6%

5.6%

Puerto Rico government obligations

2,201

Discounted cash flows

Discount rate

12.9%

Projected cumulative loss rate

19.3%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label

MBS: The

significant unobservable

inputs in

the valuation

include probability

of default,

the loss

severity

assumption,

and prepayment

rates. Shifts

in those

inputs would

result in different

fair value

measurements. Increases

in the probability

of default,

loss

severity

assumptions,

and

prepayment

rates

isolation

would

generally

result

adverse

effect

the

fair

value

the

instruments. The Corporation modeled meaningful and possible

shifts of each input to assess the effect on the fair value estimation.

Puerto Rico

Government Obligations:

The significant

unobservable input

used in

the fair value

measurement is

the assumed

loss rate

of the

underlying residential

mortgage loans

that collateralize

a pass-through

MBS guaranteed

by the

PRHFA.

A significant

increase

(decrease) in

the assumed

rate would

lead to

a (lower)

higher fair

value estimate.

See Note

3 –

“Debt Securities”

for information

the methodology used to calculate the fair value of these debt securities.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

218

Additionally, fair value

is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.

As of December 31, 2023, the Corporation recorded losses or valuation adjustments

for assets recognized at fair value on a non-

recurring basis and still held at December 31, 2023, as shown in the following

table:

Carrying value as of December 31,

Related to losses recorded for the Year Ended

December 31,

2023

2022

2021

2023

2022

2021

(In thousands)

Level 3:

Loans receivable

(1)

15,609

11,437

31,534

(1,839)

(736)

(5,466)

OREO

(2)

3,218

5,461

9,126

(416)

(917)

(48)

Premises and equipment

(3)

1,242

(218)

Level 2:

Loans held for sale

(4)

12,306

(106)

(1)

Consists mainly

of collateral dependent

commercial and construction

loans. The Corporation

generally measured losses

based on

the fair

value of the

collateral. The Corporation

derived the fair

values from external

appraisals that took into

consideration prices in observed transactions

involving similar assets in

similar locations but adjusted for

specific characteristics and assumptions of

the collateral (e.g., absorption rates),

which

are not market observable. The haircuts applied on appraisals ranged from

% to

(2)

The Corporation derived the fair values from appraisals that took

into consideration prices in observed transactions involving similar assets in similar

locations but adjusted for specific characteristics and assumptions of

the properties (e.g., absorption rates and net

operating income of income producing properties), which are

not market observable. Losses were related to market

valuation adjustments after the transfer of the loans

to the

OREO portfolio. The haircuts applied on appraisals ranged from

% to

(3)

Relates to a banking facility reclassified to held-for-sale and measured at the fair value of the collateral.

(4)

The Corporation derived the fair value of these loans based on published secondary market prices of MBS with similar characteristics.

Qualitative information regarding the fair value measurements for Level 3 financial

instruments as of December 31, 2023 are as

follows:

December 31, 2023

Method

Inputs

Loans

Income, Market, Comparable

Sales, Discounted Cash Flows

External appraised values; probability weighting of broker price

opinions; management assumptions regarding market trends or other

relevant factors

OREO

Income, Market, Comparable

Sales, Discounted Cash Flows

External appraised values; probability weighting of broker price

opinions; management assumptions regarding market trends or other

relevant factors

Premises and equipment

Market

External appraised value

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

219

The following tables present the carrying value, estimated fair value and estimated

fair value level of the hierarchy of financial

instruments as of December 31,

2023 and 2022:

Total Carrying Amount

in Statement of

Financial Condition as

of December 31,

2023

Fair Value Estimate as

December 31,

2023

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

663,164

Available-for-sale debt

securities (fair value)

5,229,984

135,393

5,088,391

6,200

Held-to-maturity debt securities:

Held-to-maturity debt securities (amortized cost)

354,178

Less: ACL on held-to-maturity debt securities

(2,197)

Held-to-maturity debt securities, net of ACL

351,981

346,132

235,239

110,893

Equity securities (amortized cost)

44,782

(1)

Other equity securities (fair value)

4,893

Loans held for sale (lower of cost or market)

7,368

7,476

Loans held for investment:

Loans held for investment (amortized cost)

12,185,483

Less: ACL for loans and finance leases

(261,843)

Loans held for investment, net of ACL

11,923,640

11,762,855

MSRs (amortized cost)

26,941

45,244

Derivative assets (fair value)

(2)

341

Liabilities:

Deposits (amortized cost)

16,555,985

16,565,435

Advances from the FHLB (amortized cost):

Long-term

500,000

500,522

Other long-term borrowings (amortized cost)

161,700

159,999

Derivative liabilities (fair value)

(2)

317

(1) Includes FHLB stock with a carrying value of $

34.6

million, which is considered restricted.

(2) Includes interest rate swap agreements, interest rate caps, forward contracts, and interest rate lock commitments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

220

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

2022

Fair Value Estimate as

December 31, 2022

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

480,505

Available-for-sale debt

securities (fair value)

5,599,520

138,875

5,452,150

8,495

Held-to-maturity debt securities:

Held-to-maturity debt securities (amortized cost)

437,537

Less: ACL on held-to-maturity debt securities

(8,286)

Held-to-maturity debt securities, net of ACL

429,251

427,115

260,106

167,009

Equity securities (amortized cost)

50,428

(1)

Other equity securities (fair value)

4,861

Loans held for sale (lower of cost or market)

12,306

Loans held for investment:

Loans held for investment (amortized cost)

11,552,825

Less: ACL for loans and finance leases

(260,464)

Loans held for investment, net of ACL

11,292,361

11,106,809

MSRs (amortized cost)

29,037

44,710

Derivative assets (fair value)

(2)

633

Liabilities:

Deposits (amortized cost)

16,143,467

16,139,937

Short-term securities sold under agreements to repurchase (amortized

cost)

75,133

75,230

Advances from the FHLB (amortized cost)

Short-term

475,000

474,731

Long-term

200,000

199,865

Other long-term borrowings (amortized cost)

183,762

187,246

Derivative liabilities (fair value)

(2)

476

(1) Includes FHLB stock with a carrying value of $

42.9

million, which is considered restricted.

(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

The short-term nature

of certain assets and

liabilities result in their

carrying value approximating

fair value. These include

cash and

cash

due

from

banks

and

other

short-term

assets,

such

FHLB

stock.

Certain

assets,

the

most

significant

being

premises

and

equipment,

goodwill

and

other

intangible

assets, are

not

considered

financial

instruments

and

are

not

included

above. Accordingly,

this fair

value

information

is not

intended

to, and

does not,

represent

the Corporation’s

underlying

value.

Many of

these assets

and

liabilities that

are subject

to the

disclosure requirements

are not

actively traded,

requiring management

to estimate

fair values.

These

estimates

necessarily

involve

the

use

assumptions

and

judgment

about

wide

variety

factors,

including

but

not

limited

to,

relevancy of market prices of comparable instruments, expected future cash flows,

and appropriate discount rates.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

221

NOTE 26 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with

ASC Topic

606, “Revenue from

Contracts with Customers” (“ASC

Topic

606”), revenues are

recognized when

control

promised

goods

services

transferred

customers

and

amount

that

reflects

the

consideration

which

the

Corporation expects to be

entitled in exchange for those

goods or services. At contract

inception, once the contract is

determined to be

within the

scope of

ASC Topic

606, the

Corporation assesses

the goods

or services

that are

promised within

each contract,

identifies

the

respective

performance

obligations,

and

assesses

whether

each

promised

good

service

distinct.

The

Corporation

then

recognizes

as revenue

the amount

of the

transaction price

that is

allocated to

the respective

performance obligation

when (or

as) the

performance obligation is satisfied.

Disaggregation of Revenue

The

following

tables

summarize

the

Corporation’s

revenue,

which

includes

net

interest

income

financial

instruments

that

outside

ASC

Topic

606

and

non-interest

income,

disaggregated

type

service

and

business

segment

for

the

years

ended

December 31, 2023, 2022 and 2021:

Year Ended December

31, 2023

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income loss

(1)

78,710

575,436

54,658

(13,916)

79,423

22,799

797,110

Service charges and fees on deposit accounts

21,207

13,289

649

2,897

38,042

Insurance commission income

11,906

202

655

12,763

Card and processing income

40,177

3,535

43,909

Other service charges and fees

288

5,592

3,723

2,484

855

12,942

Not in scope of ASC Topic

606

(1)

11,112

4,359

4,167

2,038

3,263

25,038

Total non-interest income

11,400

83,241

21,277

2,038

6,697

8,041

132,694

Total Revenue

90,110

658,677

75,935

(11,878)

86,120

30,840

929,804

Year Ended December

31, 2022

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

98,920

442,624

109,822

39,600

80,485

23,842

795,293

Service charges and fees on deposit accounts

21,906

12,412

607

2,898

37,823

Insurance commission income

12,733

995

13,743

Card and processing income

35,683

1,568

3,098

40,416

Other service charges and fees

341

4,558

3,397

2,113

684

11,093

Not in scope of ASC Topic

606

(1)

15,609

3,577

812

(74)

20,017

Total non-interest income

(loss)

15,950

78,457

18,189

(74)

2,860

7,710

123,092

Total Revenue

114,870

521,081

128,011

39,526

83,345

31,552

918,385

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

222

Year Ended December

31, 2021

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

104,638

281,703

191,917

59,331

65,967

26,373

729,929

Service charges and fees on deposit accounts

20,083

11,807

555

2,839

35,284

Insurance commission income

11,166

114

665

11,945

Card and processing income

32,639

1,161

2,657

36,508

Other service charges and fees

771

4,185

2,641

1,844

556

9,997

Not in scope of ASC Topic

606 (1)

23,507

1,701

423

227

1,399

173

27,430

Total non-interest income

24,278

69,774

16,032

227

3,963

6,890

121,164

Total Revenue

128,916

351,477

207,949

59,558

69,930

33,263

851,093

(1)

Most of

the Corporation’s

revenue is

not within

the scope

of ASC

Topic

606. The

guidance explicitly

excludes net

interest income

from financial

assets and

liabilities, as well as other non-interest income from loans,

leases, investment securities and derivative financial instruments.

For

2023,

2022,

and

2021,

most

the

Corporation’s

revenue

within

the

scope

ASC

Topic

606

was

performance

obligations satisfied at a point in time.

The following is a discussion of the revenues under the scope of ASC Topic

606.

Service Charges and Fees on Deposit Accounts

Service

charges

and fees

on deposit

accounts

relate to

fees generated

from a

variety of

deposit products

and

services rendered

customers. Charges

primarily include,

but are not

limited to, overdraft

fees, insufficient

fund fees,

dormant fees,

and monthly

service

charges. Such

fees are recognized

concurrently with

the event at

the time of

occurrence or on

a monthly basis,

in the case

of monthly

service charges.

These depository arrangements are considered

day-to-day contracts that do not extend

beyond the services performed,

as customers have the right to terminate these contracts with no penalty or,

if any, nonsubstantive penalties.

Insurance Commissions

For

insurance

commissions,

which

include

regular

and

contingent

commissions

paid

the

Corporation’s

insurance

agency,

the

agreements

contain

performance

obligation

the

sale/issuance

the

policy

and

ancillary

administrative

post-issuance

support.

The performance

obligations

are

satisfied

when

the policies

are

issued, and

revenue

is recognized

that point

time.

addition,

contingent

commission

income

may

considered

constrained,

defined

under

ASC

Topic

606.

Contingent

commission income is included

in the transaction price

only to the extent that

it is probable that a

significant reversal in the

amount of

cumulative revenue

recognized will

not occur

or payments

are received,

thus, is

recorded in

subsequent periods.

For the

years ended

December

31,

2023,

2022,

and

2021,

the

Corporation

recognized

contingent

commission

income

the

time

that

payments

were

confirmed and constraints

were released of

2.5

million, $

3.2

million, and $

3.3

million, respectively,

which was related to

the volume

of insurance policies sold in the prior year.

Card and processing

income

Card and processing income includes merchant-related income, and

credit and debit card fees.

For

merchant-related

income,

the

determination

income

recognition

included

the

consideration

2015

sale

merchant

contracts

that

involved

sales

point

sale

(“POS”)

terminals

and

marketing

alliance

under

revenue-sharing

agreement.

The

Corporation

concluded

that

control

the

POS

terminals

and

merchant

contracts

was

transferred

the

customer

the

contract’s

inception.

With

respect

the

revenue-sharing

agreement,

the

Corporation

satisfies

the

marketing

alliance

performance

obligation over

the life of

the contract,

and recognizes the

associated transaction price

as the entity

performs and any

constraints over

the variable consideration are resolved.

Credit

and

debit

card

fees

primarily

represent

revenues

earned

from

interchange

fees

and

ATM

fees.

Interchange

and

network

revenues are earned on credit and

debit card transactions conducted with

payment networks. ATM

fees are primarily earned as a

result

of surcharges

assessed to

non-FirstBank customers

who use

a FirstBank

ATM.

Such fees

are generally

recognized concurrently

with

the delivery of services on a daily basis.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

223

The

Corporation

offers

products,

primarily

credit

cards,

that

offer

various

rewards

reward

program

members,

such

airline

tickets, cash, or

merchandise, based

on account

activity.

The Corporation

generally recognizes the

cost of rewards

as part of

business

promotion

expenses when

the rewards

are earned

by the

customer and,

at that

time, records

the corresponding

reward liability.

The

Corporation

determines

the

reward

liability

based

points

earned

date

that

the

Corporation

expects

redeemed

and

the

average

cost

per

point

redemption.

The

reward

liability

reduced

points

are

redeemed.

estimating

the

reward

liability,

the

Corporation considers historical

reward redemption behavior,

the terms of the

current reward program,

and the card purchase

activity.

The reward liability

is sensitive to

changes in the

reward redemption

type and redemption

rate, which is

based on the

expectation that

the

vast

majority

all points

earned

will eventually

redeemed.

The reward

liability,

which

is included

in other

liabilities in

the

consolidated statements of financial condition, totaled $

8.9

million and $

9.2

million as of December 31, 2023 and 2022, respectively.

Other Fees

Other fees primarily

include revenues generated

from wire transfers,

lockboxes, bank

issuances of checks

and trust fees

recognized

from

transfer

paying

agent,

retirement

plan,

and

other

trustee

activities.

Revenues

are

recognized

recurring

basis

when

the

services are rendered and are included as part of other non-interest income

in the consolidated statements of income.

Contract Balances

As of December

31, 2023 and

2022, there were

contract assets recorded

on the Corporation’s

consolidated financial

statements.

Moreover, the balances of contract liabilities as of such

dates were not significant.

Other

The Corporation

also did

not have

any material contract

acquisition costs

and did

not make

any significant

judgments or

estimates

in recognizing revenue for financial reporting purposes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

224

NOTE 27 – SEGMENT INFORMATION

Based

upon

the

Corporation’s

organizational

structure

and

the

information

provided

the

Chief

Executive

Officer

and

management, the

operating segments

are based

primarily on

the Corporation’s

lines of

business for

its operations

in Puerto

Rico, the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

December

31,

2023,

the

Corporation

had

six

reportable

segments:

Mortgage

Banking;

Consumer

(Retail)

Banking;

Commercial

and

Corporate

Banking;

Treasury and

Investments; United States

Operations; and Virgin

Islands Operations. Management

determined the reportable

segments

based

the

internal

structure

used

evaluate

performance

and

assess

where

allocate

resources.

Other

factors,

such

the

Corporation’s

organizational

chart,

nature

the

products,

distribution

channels,

and

the

economic

characteristics

the

products,

were also considered in the determination of the reportable segments.

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage

Banking

segment

also

acquires

and

sells

mortgages

the

secondary

markets.

The

Consumer

(Retail)

Banking

segment

consists

the Corporation’s

consumer

lending

and deposit

-taking

activities

conducted

mainly

through

its branch

network

and loan

centers. The Commercial and

Corporate Banking segment

consists of the Corporation’s

lending and other services

for large customers

represented

by specialized

and middle-market

clients and

the public

sector.

The Commercial

and Corporate

Banking segment

offers

commercial loans,

including commercial

real estate

and construction

loans, and

floor plan financings,

as well

as other

products, such

as cash

management and

business management

services. The

Treasury

and Investments

segment is

responsible for

the Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

manage

and

enhance

liquidity.

This

segment

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking,

and

the

United

States

Operations

segments

finance

their

lending

activities

and

borrows

from

those

segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

Treasury

and Investments

and the

Consumer (Retail)

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

interest income

or expense

and the Corporation’s

actual

net

interest income

from

centralized

management

of funding

costs is

reported

in the

Treasury

and Investments

segment.

The

United States

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

United States

mainland,

including

commercial and consumer banking

services. The Virgin

Islands Operations segment consists of all

banking activities conducted by the

Corporation in the USVI and the BVI, including commercial and consumer

banking services.

The

accounting

policies

the

segments

are

the

same

those

referred

Note

–

“Nature

Business

and

Summary

Significant Accounting Policies.”

The

Corporation

evaluates

the

performance

the

segments

based

net

interest

income,

the

provision

for

credit

losses,

non-

interest

income

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

the

average

volume

their

interest-

earning assets less the ACL.

The following tables present information about the reportable segments for

the indicated periods:

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Year Ended December

31, 2023

Interest income

126,625

354,970

265,395

116,382

132,490

27,624

1,023,486

Net (charge) credit for transfer of funds

(47,915)

356,262

(210,737)

(93,405)

(4,205)

Interest expense

(135,796)

(36,893)

(48,862)

(4,825)

(226,376)

Net interest income (loss)

78,710

575,436

54,658

(13,916)

79,423

22,799

797,110

Provision for credit losses - (benefit) expense

(7,531)

65,887

(6,189)

8,687

60,940

Non-interest income

11,400

83,241

21,277

2,038

6,697

8,041

132,694

Direct non-interest expenses

23,469

173,158

39,718

3,799

34,682

27,900

302,726

Segment income (loss)

74,172

419,632

42,406

(15,697)

42,751

2,874

566,138

Average earnings assets

2,143,179

3,295,486

3,780,195

6,186,018

2,072,292

389,489

17,866,659

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

225

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Year Ended December

31, 2022

Interest income

130,185

302,631

205,888

104,215

94,782

24,913

862,614

Net (charge) credit for transfer of funds

(31,265)

173,917

(96,066)

(43,838)

(2,748)

Interest expense

(33,924)

(20,777)

(11,549)

(1,071)

(67,321)

Net interest income

98,920

442,624

109,822

39,600

80,485

23,842

795,293

Provision for credit losses - (benefit) expense

(7,643)

57,123

(20,241)

(434)

(3,073)

1,964

27,696

Non-interest income (loss)

15,950

78,457

18,189

(74)

2,860

7,710

123,092

Direct non-interest expenses

23,049

162,663

37,131

3,702

33,365

27,911

287,821

Segment income

99,464

301,295

111,121

36,258

53,053

1,677

602,868

Average earnings assets

2,233,245

2,918,800

3,626,107

7,300,208

2,069,030

369,504

18,516,894

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Year ended December

31, 2021:

Interest income

144,203

271,127

201,684

67,841

82,194

27,659

794,708

Net (charge) credit for transfer of funds

(39,565)

38,859

(9,767)

14,687

(4,214)

Interest expense

(28,283)

(23,197)

(12,013)

(1,286)

(64,779)

Net interest income

104,638

281,703

191,917

59,331

65,967

26,373

729,929

Provision for credit losses - (benefit) expense

(16,030)

20,322

(67,544)

(136)

(975)

(1,335)

(65,698)

Non-interest income

24,278

69,774

16,032

227

3,963

6,890

121,164

Direct non-interest expenses

29,125

165,357

36,219

4,093

33,902

28,084

296,780

Segment income

115,821

165,798

239,274

55,601

37,003

6,514

620,011

Average earnings assets

2,506,365

2,551,278

3,793,945

7,827,326

2,126,528

430,499

19,235,941

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:

Year Ended

December 31,

2023

2022

2021

(In thousands)

Net income:

Total income for segments

566,138

602,868

620,011

Other operating expenses

(1)

168,702

155,284

192,194

Income before income taxes

397,436

447,584

427,817

Income tax expense

94,572

142,512

146,792

Total consolidated net income

302,864

305,072

281,025

Average assets:

Total average earning assets for segments

17,866,659

18,516,894

19,235,941

Average non-earning assets

839,764

861,755

1,067,092

Total consolidated average assets

18,706,423

19,378,649

20,303,033

(1)

Expenses pertaining to corporate administrative functions that support

the operating segment, but are not specifically attributable to

or managed by any segment, are not included in the

reported financial results of the operating segments. The

unallocated corporate expenses include certain general and administrative

expenses and related depreciation and amortization

expenses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

226

The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on the

location in which the transaction was originated as of the indicated dates:

2023

2022

2021

(In thousands)

Revenues:

Puerto Rico

981,328

855,441

795,166

United States

139,187

97,642

86,157

Virgin Islands

35,665

32,623

34,549

Total consolidated revenues

1,156,180

985,706

915,872

Selected Balance Sheet Information:

Total assets:

Puerto Rico

16,308,000

16,020,987

18,175,910

United States

2,141,427

2,213,333

2,189,440

Virgin Islands

460,122

400,164

419,925

Loans:

Puerto Rico

9,745,872

9,097,013

8,755,434

United States

2,022,261

2,088,351

1,948,716

Virgin Islands

424,718

379,767

391,663

Deposits:

Puerto Rico

(1)

13,429,303

12,933,570

14,113,874

United States

(2)

1,631,402

1,623,725

1,928,749

Virgin Islands

1,495,280

1,586,172

1,742,271

(1)

For 2023, 2022, and 2021, includes $

420.2

million, $

1.4

million, and $

34.2

million, respectively, of brokered CDs

allocated to Puerto Rico operations.

(2)

For 2023, 2022, and 2021 includes $

363.1

million, $

104.4

million, and $

66.2

million, respectively, of brokered CDs

allocated to United States operations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

227

NOTE 28 – SUPPLEMENTAL

STATEMENT

OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information is as follows for the indicated

periods:

Year Ended

December 31,

2023

2022

2021

(In thousands)

Cash paid for:

Interest

207,829

65,986

68,668

Income tax

109,512

51,798

15,477

Operating cash flow from operating leases

17,307

18,202

19,328

Non-cash investing and financing activities:

Additions to OREO

22,649

15,350

19,348

Additions to auto and other repossessed assets

66,796

45,607

33,408

Capitalization of servicing assets

2,240

3,122

5,194

Loan securitizations

122,732

141,909

191,434

Loans held for investment transferred to held for sale

3,451

4,632

33,010

ROU assets obtained in exchange for operating lease liabilities,

net of lease terminations

4,861

2,733

4,553

Acquisition

(1)

Consideration

584

Fair value of assets acquired

605

(1)

Relates to the fair value estimate update performed within one year

of the closing of the BSPR acquisition (measurement period adjustments),

in accordance with ASC 805.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

228

NOTE 29 – REGULATORY

MATTERS, COMMITMENTS

AND CONTINGENCIES

Regulatory Matters

The

Corporation

and

FirstBank

are

each

subject

various

regulatory

capital

requirements

imposed

the

U.S.

federal

banking

agencies. Failure

to meet

minimum capital

requirements can

result in

certain mandatory

and possibly

additional discretionary

actions

by regulators

that, if

undertaken, could

have a

direct material

adverse effect

on the

Corporation’s

financial statements

and activities.

Under

capital

adequacy

guidelines

and

the

regulatory

framework

for

prompt

corrective

action,

the

Corporation

must

meet

specific

capital

guidelines

that

involve

quantitative

measures

the Corporation’s

and

FirstBank’s

assets,

liabilities,

and

certain

off-balance

sheet items

as calculated

under regulatory

accounting practices.

The Corporation’s

capital amounts

and classification

are also

subject

to qualitative judgments and

adjustment by the regulators with respect

to minimum capital requirements, components,

risk weightings,

and other factors.

As of December

31, 2023 and

2022, the Corporation

and FirstBank exceeded

the minimum regulatory

capital ratios

for

capital

adequacy

purposes

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

considered

well-capitalized

institution under

the regulatory framework

for prompt corrective

action. As of

December 31, 2023,

management does not

believe that

any condition has changed or event has occurred that would have changed

the institution’s status.

The Corporation and FirstBank

compute risk-weighted assets

using the standardized approach

required by the U.S.

Basel III capital

rules (“Basel III rules”).

The

Basel

III

rules

require

the

Corporation

maintain

additional

capital

conservation

buffer

2.5

certain

regulatory

capital

ratios

avoid

limitations

both

(i)

capital

distributions

(

e.g.

repurchases

capital

instruments,

dividends

and

interest

payments on capital instruments) and (ii) discretionary bonus payments

to executive officers and heads of major business lines.

As part

of its

response to

the impact

of COVID-19,

on March

31, 2020,

the federal

banking agencies

issued an

interim final

rule

that

provided

the

option

temporarily

delay

the

effects

CECL

regulatory

capital

for

two

years,

followed

three-year

transition

period.

The

interim

final

rule

provides

that,

the

election

qualified

banking

organization,

the

day

one

impact

retained earnings plus

% of the change in

the ACL (as defined

in the final rule) from

January 1, 2020 to

December 31, 2021 will

delayed

for

two

years

and

phased-in

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition period

of five years.

Accordingly,

as of December

31, 2023, the

capital measures of

the Corporation and

the Bank included

32.4

million associated

with the

CECL day

one impact

to retained

earnings plus

% of

the increase

in the

ACL (as

defined in

the

interim

final

rule)

from

January

2020

December

31,

2021,

and

32.4

million

remains

excluded

phased-in

during

the

remainder of

the three-year

transition period.

The federal

financial regulatory

agencies may

take other

measures affecting

regulatory

capital to address

macroeconomic conditions,

as well as

the effect

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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

229

The regulatory capital position

of the Corporation and

FirstBank as of December

31, 2023 and 2022,

which reflects the delay in

the

full effect of CECL on regulatory capital, were as follows:

Regulatory Requirements

Actual

For Capital Adequacy Purposes

To be Well

-Capitalized

Thresholds

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of December 31, 2023

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,403,319

18.57

1,035,589

8.0

N/A

FirstBank

2,376,003

18.36

1,035,406

8.0

1,294,257

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,084,432

16.10

528,519

4.5

N/A

FirstBank

2,113,995

16.33

582,416

4.5

841,267

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,084,432

16.10

776,692

6.0

N/A

FirstBank

2,213,995

17.11

776,554

6.0

1,035,406

8.0

Leverage ratio

First BanCorp.

2,084,432

10.78

773,615

4.0

N/A

FirstBank

2,213,995

11.45

773,345

4.0

966,682

5.0

As of December 31, 2022

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,385,866

19.21

993,405

8.0

N/A

FirstBank

2,346,093

18.90

993,264

8.0

1,241,580

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,052,333

16.53

558,790

4.5

N/A

FirstBank

2,090,832

16.84

558,711

4.5

807,027

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,052,333

16.53

745,054

6.0

N/A

FirstBank

2,190,832

17.65

744,948

6.0

993,264

8.0

Leverage ratio

First BanCorp.

2,052,333

10.70

767,075

4.0

N/A

FirstBank

2,190,832

11.43

766,714

4.0

958,392

5.0

Cash Restrictions

Cash and

cash

equivalents

include

amounts

segregated

for

regulatory

purposes.

The

Corporation’s

bank

subsidiary,

FirstBank,

required

the

Puerto

Rico

Banking

Law

maintain

minimum

average

weekly

reserve

balances

cover

demand

deposits.

The

amount of those minimum average weekly reserve

balances for the period that ended December 31, 2023

was $

1.0

billion (2022 - $

1.1

billion).

December 31,

2023

and

2022,

the

Bank

complied

with

the

requirement.

Cash

and

due

from

banks

well

other

highly liquid securities are used to cover the required average reserve balances.

As of December

31, 2023, and

as required by

the Puerto Rico

International Banking

Law,

the Corporation maintained

0.3

million

in time deposits, related to FirstBank Overseas Corporation, an international

banking entity that is a subsidiary of FirstBank.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

230

Commitments

The

Corporation’s

exposure

credit

loss

the

event

nonperformance

the

other

party

the

financial

instrument

commitments to extend credit

and standby letters of credit

is represented by the contractual amount

of those instruments. Management

uses the same

credit policies

and approval process

in entering into

commitments and

conditional obligations

as it does

for on-balance

sheet instruments.

Commitments to extend

credit are agreements

to lend to

a customer as long

as there is no

violation of any

conditions established in

the contract. Commitments generally have fixed expiration

dates or other termination clauses. Since certain commitments

are expected

to expire

without being drawn

upon, the

total commitment

amount does not

necessarily represent

future cash requirements.

For most

of the commercial

lines of credit, the

Corporation has the

option to reevaluate

the agreement prior

to additional disbursements.

In the

case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility

at any time and without cause.

general,

commercial

and

standby

letters

credit

are

issued

facilitate

foreign

and

domestic

trade

transactions.

Normally,

commercial and standby

letters of credit

are short-term commitments

used to finance

commercial contracts for

the shipment of goods.

The

collateral

for

these

letters

credit

includes

cash

available

commercial

lines

credit.

The

fair

value

commercial

and

standby letters

of credit

is based

on the

fees currently

charged for

such agreements,

which, as

of December 31,

2023 and

2022, were

not significant.

The following table summarizes commitments to extend credit and standby letters of

credit as of the indicated dates:

December 31,

2023

2022

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

234,974

170,639

Unused credit card lines

882,486

936,231

Unused personal lines of credit

38,956

41,988

Commercial lines of credit

862,963

761,634

Letters of credit:

Commercial letters of credit

69,543

68,647

Standby letters of credit

8,313

9,160

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

231

Contingencies

As of

December 31,

2023, First

BanCorp. and

its subsidiaries

were defendants

in various

legal proceedings,

claims and

other loss

contingencies

arising

the

ordinary

course

business.

least

quarterly

basis,

the

Corporation

assesses

its

liabilities

and

contingencies in connection

with threatened and

outstanding legal proceedings,

claims and other

loss contingencies utilizing

the latest

information

available. For

legal proceedings,

claims and

other loss

contingencies where

it is

both probable

that the

Corporation

will

incur

loss

and

the

amount

can

reasonably

estimated,

the

Corporation

establishes

accrual

for

the

loss.

Once

established,

the

accrual

adjusted

appropriate

reflect

any

relevant

developments.

For

legal

proceedings,

claims

and

other

loss

contingencies

where a loss is not probable or the amount of the loss cannot be estimated, no accrual

is established.

Any estimate

involves significant

judgment, given

the varying

stages of

the proceedings

(including the

fact that

some of

them are

currently in

preliminary stages),

the existence

in some

of the

current proceedings

of multiple

defendants whose

share of

liability has

yet

determined,

the

numerous

unresolved

issues

the

proceedings,

and

the

inherent

uncertainty

the

various

potential

outcomes of such

proceedings. Accordingly,

the Corporation’s

estimate will change

from time to time,

and actual losses

may be more

or less than the current estimate.

While

the

final

outcome

legal

proceedings,

claims,

and

other

loss

contingencies

inherently

uncertain,

based

information

currently

available,

management

believes

that

the

final

disposition

the

Corporation’s

legal

proceedings,

claims

and

other

loss

contingencies,

the

extent

not

previously

provided

for,

will

not

have

material

adverse

effect

the

Corporation’s

consolidated

financial position as a whole.

If management believes that, based on available information,

it is at least reasonably possible that a material loss (or material

loss in

excess

any

accrual)

will

incurred

connection

with

any

legal

contingencies,

the

Corporation

discloses

estimate

the

possible loss or

range of loss,

either individually or

in the aggregate,

as appropriate, if

such an estimate can

be made, or

discloses that

an estimate cannot be made. Based on the Corporation’s

assessment as of December 31, 2023, no such disclosures were necessary.

November

16,

2023,

the

FDIC

approved

final

rule

implement

special

assessment

recover

the

loss

the

Deposit

Insurance

Fund

associated

with

protecting

uninsured

depositors

following

the

closure

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

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

and as required

by ASC Topic

450, “Contingencies,”

during the

fourth quarter

of 2023,

the Corporation

recorded a

charge of

6.3

million in

the consolidated

statements of

income as

part

of “FDIC deposit insurance expenses”, which reflects the expected total

payment to be made to the FDIC as of December 31, 2023.

February

23,

2024,

the

FDIC

informed

that

the

estimated

loss

attributable

the

protection

uninsured

depositors

the

aforementioned

failed

institutions

$20.4

billion,

increase

approximately

$4.1

billion

from

the

estimate

$16.3

billion

described

the

final

rule.

The

FDIC

retains

the

ability

cease

collection

early,

extend

the

special

assessment

collection

period

beyond

the

eight-quarter

collection

period,

impose

additional

shortfall

special

assessment

one-time

basis

after

the

receiverships for

the two banks

are terminated.

The collection period

may change due

to updates to

the estimated loss

pursuant to

the

systemic

risk

determination

assessments

collected

change

due

corrective

amendments

the

amount

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,

released in June 2024.

As of December 31, 2023,

the

Corporation

cannot

reasonably

estimate

the

additional

impact

the

initial

estimate

the

special

assessment,

such

estimate

dependent on the progress of liquidation efforts of the failed institutions.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

232

NOTE 30 – FIRST BANCORP.

(HOLDING COMPANY

ONLY) FINANCIAL

INFORMATION

The following

condensed financial information

presents the financial

position of

First BanCorp.

at the holding

company level only

as of December

31, 2023 and

2022, and the

results of its operations

and cash flows

for the years

ended December

31, 2023, 2022

and

2021:

Statements of Financial Condition

As of December 31,

2023

2022

(In thousands)

Assets

Cash and due from banks

11,452

19,279

Other investment securities

825

735

Investment in First Bank Puerto Rico, at equity

1,627,172

1,464,026

Investment in First Bank Insurance Agency,

at equity

24,948

28,770

Investment in FBP Statutory Trust I

1,289

1,951

Investment in FBP Statutory Trust II

3,561

Dividends receivable

713

624

Other assets

476

430

Total assets

1,670,436

1,519,376

Liabilities and Stockholders’ Equity

Liabilities:

Long-term borrowings

161,700

183,762

Accounts payable and other liabilities

11,127

10,074

Total liabilities

172,827

193,836

Stockholders’ equity

1,497,609

1,325,540

Total liabilities and stockholders’

equity

1,670,436

1,519,376

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

233

Statements of Income

Year

Ended December 31,

2023

2022

2021

(In thousands)

Income

Interest income on money market investments

228

Dividend income from banking subsidiaries

319,683

368,670

98,060

Dividend income from non-banking subsidiaries

12,000

30,000

Gain on early extinguishment of debt

1,605

Other income

406

248

154

Total income

333,922

368,997

128,265

Expense

Interest expense on long-term borrowings

13,535

8,253

5,135

Other non-interest expenses

1,817

1,730

1,929

Total expense

15,352

9,983

7,064

Income before income taxes and equity

in undistributed earnings of subsidiaries

318,570

359,014

121,201

Income tax expense

3,126

3,448

2,854

Equity in undistributed earnings of subsidiaries

(distribution in excess of earnings)

(12,580)

(50,494)

162,678

Net income

302,864

305,072

281,025

Other comprehensive income (loss), net of tax

165,608

(720,779)

(139,454)

Comprehensive income (loss)

468,472

(415,707)

141,571

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

234

Statements of Cash Flows

Year Ended December 31,

2023

2022

2021

(In thousands)

Cash flows from operating activities:

Net income

302,864

305,072

281,025

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation

145

148

149

Equity in undistributed earnings of subsidiaries

12,580

50,494

(162,678)

Gain on early extinguishment of debt

(1,605)

Net (increase) decrease in other assets

(146)

(688)

1,657

Net increase in other liabilities

1,127

1,545

3,578

Net cash provided by operating activities

314,965

356,571

123,731

Cash flows from investing activities:

Purchase of equity securities

(90)

(450)

Return of capital from wholly-owned subsidiaries

(1)

8,000

200,000

Net cash (used in) provided by investing activities

(90)

7,550

200,000

Cash flows from financing activities:

Repurchase of common stock

(203,241)

(277,769)

(216,522)

Repayment of junior subordinated debentures

(19,795)

Dividends paid on common stock

(99,666)

(87,824)

(65,021)

Dividends paid on preferred stock

(2,453)

Redemption of preferred stock - Series A through E

(36,104)

Net cash used in financing activities

(322,702)

(365,593)

(320,100)

Net (decrease) increase in cash and cash equivalents

(7,827)

(1,472)

3,631

Cash and cash equivalents at beginning of the year

19,279

20,751

17,120

Cash and cash equivalents at end of year

11,452

19,279

20,751

Cash and cash equivalents include:

Cash and due from banks

11,452

19,279

20,751

Money market instruments

11,452

19,279

20,751

(1)

During 2022 and 2021, FirstBank, a wholly-owned subsidiary of First BanCorp., redeemed

0.3

million and

million shares of its preferred stock,

respectively, for a total price of approximately $

8.0

million and $

200

million, respectively.

235

Item 9. Changes in and Disagreements with Accountants on Accounting

and

Financial Disclosures

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

First

BanCorp.’s

management,

including

its

Chief

Executive

Officer

and

Chief

Financial

Officer,

evaluated

the

effectiveness

First BanCorp.’s

disclosure

controls and

procedures

(as defined

in Rule

13a-15(e) and

15d-15(e) under

the Exchange

Act) as

of the

end of the period covered

by this Form 10-K. Based

on this evaluation as of

the period covered by this Form

10-K, our CEO and CFO

concluded

that

the

Corporation’s

disclosure

controls

and

procedures

were

effective

and

provide

reasonable

assurance

that

the

information

required

disclosed

the

Corporation

reports

that

the

Corporation

files

submits

under

the

Exchange

Act

recorded,

processed,

summarized

and

reported

within

the

time

periods

specified

SEC

rules

and

forms

and

accumulated

and

reported to

the Corporation’s

management,

including the

CEO and

CFO, as

appropriate to

allow timely

decisions regarding

required

disclosure.

Management’s Report on Internal Control

over Financial Reporting

Management’s

Report

Internal

Control

over

Financial

Reporting

included

Part

II,

Item

this

Form

10-K

and

incorporated herein by reference.

The effectiveness of the Corporation’s

internal control over financial reporting as of December

31, 2023 has been audited by Crowe

LLP,

an independent

registered public

accounting firm,

as stated

in their

report included

in Part

II, Item

8 of

this Annual

Report on

Form 10-K.

Changes in Internal Control over Financial Reporting

There have

been no

changes to

the Corporation’s

internal control

over financial

reporting (as

defined in

Rules 13a-15(f)

and 15d-

15(f)

under

the

Exchange

Act)

during

our

most

recent

quarter

ended

December

31,

2023

that

have

materially

affected,

are

reasonably likely to materially affect, the Corporation’s

internal control over financial reporting.

Item 9B. Other Information

Rule 10b5-1 Trading Arrangements

During

the

quarter

ended

December

31,

2023,

none

the

Company’s

directors

officers

(as

defined

Rule

16a-1(f)

the

Exchange Act)

adopted

terminated

a “Rule 10b5-1 trading

arrangement” or “

non-Rule

10b5-1

trading arrangement,” as those

terms

are defined in Item 408 of Regulation S-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

236

PART

III

Item 10. Directors, Executive Officers and Corporate Governance

Information

response

this

item

incorporated

herein

reference

from

the

sections

entitled

“Information

With

Respect

Nominees Standing for Election as

Directors and With Respect

to Executive Officers of the

Corporation,” “Corporate Governance and

Related Matters,”

“Delinquent Section

16(a) Reports”

and “Audit

Committee Report”

contained in

First BanCorp.’s

definitive Proxy

Statement for use

in connection with its

2024 Annual Meeting

of Stockholders (the “2024

Proxy Statement”) to

be filed with the

SEC

within 120 days of December 31, 2023.

Item 11. Executive Compensation.

Information

response

this

item

incorporated

herein

reference

from

the

sections

entitled

“Compensation

Committee

Interlocks

and

Insider

Participation,”

“Compensation

Directors,”

“Non-Management

Chairman

and

Specialized

Expertise,”

“Executive Compensation Disclosure –

Compensation Discussion and Analysis,” “Executive

Compensation Tables

and Compensation

Information” and “Compensation Committee Report” in the 2024

Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters

Securities authorized for issuance under equity compensation plans

The following table sets forth information about First BanCorp. common stock

authorized for issuance under First BanCorp.’s

existing equity compensation plan as of December 31, 2023:

Plan category

(a)

Number of Securities to

be Issued Upon Exercise

of Outstanding Options,

Warrants and Rights

(b)

Weighted Average Exercise

Price of Outstanding

Options, Warrants and

Rights

(c)

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation

Plans (Excluding

Securities Reflected in

Column (a))

Equity compensation plans, approved by stockholders

534,261

(1)

3,153,621

(2)

Equity compensation plans not approved by stockholders

N/A

Total

534,261

3,153,621

(1)

Amount represents unvested performance-based

units granted to executives, with each

unit representing one share of the

Corporation's common stock.

Performance shares will vest on

the

achievement of

a pre-established

performance

target goal

at the

end of

a three-year

performance period.

Refer to

Note 16

- "Stock-Based

Compensation"

to the

consolidated financial

statements for more information on performance units.

(2)

Securities available for

future issuance under

the First BanCorp.

2008 Omnibus Incentive

Plan (the "Omnibus Plan"),

which was initially approved

by stockholders on April

29, 2008. On

May 24, 2016, the

Omnibus Plan was amended

to, among other things,

increase the number of shares

of common stock reserved

for issuance under the

Omnibus Plan and extend

the term

of the Omnibus Plan

to May 24, 2026.

The Omnibus Plan provides

for equity-based compensation incentives

through the grant of

stock options, stock

appreciation rights, restricted stock,

restricted stock units, performance

shares, and other stock-based

awards. As amended,

the Omnibus Plan provides

for the issuance of

up to 14,169,807 shares

of common stock, subject

adjustments for stock splits, reorganization and other similar events.

Additional

information

response

this

item

incorporated

reference

from

the

section

entitled

“Security

Ownership

Certain Beneficial Owners and Management” in the 2024 Proxy

Statement.

Item 13. Certain Relationships and Related Transactions,

and Director Independence

Information in response to this item is incorporated herein by reference

from the sections entitled “Certain Relationships and Related

Person Transactions” and “Corporate

Governance and Related Matters” in the 2024 Proxy Statement.

237

Item 14. Principal Accountant Fees and Services.

Audit Fees

Information

response

this

item

incorporated

herein

reference

from

the

section

entitled

“Audit

Fees”

and

“Audit

Committee Report” in the 2024 Proxy Statement.

PART

Item 15. Exhibits and Financial Statement Schedules

(a) List of documents filed as part of this report.

(1)

Financial Statements.

The

following

consolidated

financial

statements

First

BanCorp.,

together

with

the

reports

thereon

First

BanCorp.’s

independent

registered public

accounting

firm, Crowe

LLP (PCAOB

ID No.

173),

dated February

28, 2024,

are included

in Part

II,

Item 8 of this Form 10-K:

– Report of Crowe LLP,

Independent Registered Public Accounting Firm.

– Attestation Report of Crowe LLP,

Independent Registered Public Accounting Firm on Internal Control

over Financial

Reporting.

– Consolidated Statements of Financial Condition as of December 31,

2023 and 2022.

– Consolidated Statements of Income for Each of the Three Years

in the Period Ended December 31, 2023.

– Consolidated Statements of Comprehensive Income (Loss) for

Each of the Three Years

in the Period Ended December 31,

2023.

– Consolidated Statements of Cash Flows for Each of the Three Years

in the Period Ended December 31, 2023.

– Consolidated Statements of Changes in Stockholders’ Equity for

Each of the Three Years

in the Period Ended December 31,

2023.

– Notes to the Consolidated Financial Statements.

(2)

Financial statement schedules.

All financial schedules have been omitted because they are not applicable or

the required information is shown in the financial

statements or notes thereto.

(b) Exhibits listed in the Exhibit Index below are filed herewith as part of this Annual Report on

Form 10-K and are incorporated

herein by reference.

Item 16. Form 10-K Summary

Not applicable.

238

EXHIBIT INDEX

Exhibit No.

Description

3.1

Restated Articles of Incorporation, incorporated by reference from Exhibit 3.1 of the Registration Statement on Form S-

1/A, filed on October 20, 2011.

3.2

Amended and Restated By-Laws, incorporated by reference from Exhibit 3.2 of the Form 8-K, filed on March 31, 2020.

4.1

Description of First BanCorp. capital stock.

10.1*

First BanCorp Omnibus Incentive Plan, as amended, incorporated by reference from Exhibit 99.1 of the Form S-8, filed on

June 21, 2016.

10.2*

10.3*

10.4*

Form of Restricted Stock Award Agreement

Form of First BanCorp Long-Term Incentive Award Agreement, incorporated by reference from Exhibit 10.1 of the Form

10-Q for the quarter ended March 31, 2023, filed on May 10, 2023.

Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from Exhibit 10.6- of the

Form 10-K for the year ended December 31, 1998, filed on March 26, 1999.

10.5*

Amendment No. 1 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from

Exhibit 10.2 of the Form 10-Q for the quarter ended March 31, 2009, filed on May 11, 2009.

10.6*

Amendment No. 2 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from

Exhibit 10.6 of the Form 10-K for the year ended December 31, 2009, filed on March 2, 2010.

10.7*

Employment Agreement between First BanCorp and Orlando Berges, incorporated by reference from Exhibit 10.1 of the

Form 10-Q for the quarter ended June 30, 2009, filed on August 11, 2009.

10.8*

Letter Agreement between First BanCorp. and Roberto R. Herencia, incorporated by reference from Exhibit 10.1 of the

Form 8-K/A, filed on November 2, 2011.

10.9*

Offer Letter between First BanCorp and Juan Acosta Reboyras, incorporated by reference from Exhibit 10.1 of the Form 8-

K, filed on September 3, 2014.

10.10*

Offer Letter between First BanCorp and Luz A. Crespo, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed

on February 9, 2015.

10.11*

Offer Letter between First BanCorp and John A. Heffern, incorporated by reference from Exhibit 10.1 of the Form 8-K,

filed on November 1, 2017.

10.12*

Offer Letter between First BanCorp and Daniel E. Frye, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed

on August 31, 2018.

10.13*

Offer Letter between First BanCorp and Félix M. Villamil, incorporated by reference from Exhibit 10.1 of the Form 8-K,

filed on November 5, 2020.

10.14*

Offer Letter between First BanCorp and Patricia M. Eaves, incorporated by reference from Exhibit 10.1 of the Form 8-K,

filed on April 1, 2021.

10.15*

Form of Executive Employment Agreement executed by each executive officer, incorporated by reference from Exhibit

10.1 of the Form 10-Q for the quarter ended June 30, 2018, filed on August 9, 2018.

10.16*

Revised

Non-Management and Non-

Employee

Directors of the Board of Directors Compensation Structure, incorporated

by reference from Exhibit 10.1 of the Form 10-Q for the quarter

ended September 30, 2022, filed on November 8,

2022.

18.1

Preferability letter from Crowe, LLP regarding a change in accounting method dated November 8, 2022, incorporated by

reference form Exhibit 18 of the Form 10-Q for the quarter ended September 30, 2022, filed on November 8, 2022.

21.1

List of First BanCorp’s subsidiaries

23.1

Consent of Crowe LLP

31.1

CEO

Certification pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002

31.2

CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

32.2

CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

97.1

FirstBanCorp Compensation Clawback Policy

101.INS

Inline XBRL Instance Document, filed herewith. The

instance document does not appear in the interactive

data file because

its XBRL tags are embedded within the inline XBRL

document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document, filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith

104

The cover page of First BanCorp. Annual Report on Form

10-K for the year ended December 31, 2023, formatted in Inline

XBRL (included within the Exhibit 101 attachments)

_____________________________

*Management contract or compensatory plan or agreement.

239

SIGNATURES

Pursuant to the requirements of

the Securities Exchange Act of

1934, the Corporation has

duly caused this report to

be signed on its behalf

by the

undersigned hereunto duly authorized.

FIRST BANCORP.

By:

/s/ Aurelio Alemán

Date: 2/28/2024

Aurelio Alemán

President, Chief Executive Officer and Director

Pursuant

the

requirements

the

Securities

Exchange

Act

1934,

this

report

has

been

signed

the

following

persons

behalf

the

registrant and in the capacities and on the dates indicated.

/s/ Aurelio Alemán

Date: 2/28/2024

Aurelio Alemán

President, Chief Executive Officer and Director

/s/ Orlando Berges

Date: 2/28/2024

Orlando Berges, CPA

Executive Vice President and Chief Financial Officer

/s/ Roberto R. Herencia

Date: 2/28/2024

Roberto R. Herencia,

Director and Chairman of the Board

/s/ Patricia M. Eaves

Date: 2/28/2024

Patricia M. Eaves,

Director

/s/ Luz A. Crespo

Date: 2/28/2024

Luz A. Crespo,

Director

/s/ Juan Acosta-Reboyras

Date: 2/28/2024

Juan Acosta-Reboyras,

Director

/s/ John A. Heffern

Date: 2/28/2024

John A. Heffern,

Director

/s/ Daniel E. Frye

Date: 2/28/2024

Daniel E. Frye,

Director

/s/ Tracey Dedrick

Date: 2/28/2024

Tracey Dedrick,

Director

/s/ Felix Villamil

Date: 2/28/2024

Felix Villamil,

Director

/s/ Said Ortiz

Date: 2/28/2024

Said Ortiz, CPA

Senior Vice President and Chief Accounting Officer