FIRST BANCORP PR

GENERAL

First

is

a

publicly

owned

holding

company

that

is

subject

to

regulation,

and

by

the

Federal Reserve Board. The Corporation was incorporated under

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

bank holding company

for FirstBank. Through

its subsidiaries, including

FirstBank, the Corporation

provides full-service commercial

and

banking

banking

automobile

financing,

agency

and

other

products and

services in

and the

BVI. As

had total assets

of

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

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

The

has

two

subsidiaries:

and

Agency,

Inc.

(“FirstBank

Agency”).

is

a

Puerto

bank,

and

Agency

is

a

Puerto

insurance agency.

FirstBank is subject to

the supervision, examination

and regulation of both

the Office of the

Commissioner of Financial Institutions

of

Puerto

Rico

(“OCIF”)

and

the

FDIC.

are

insured

through

the

FDIC

Deposit

Fund

(the

“DIF”).

In

within FirstBank, the

Bank’s USVI

subject to regulation

and examination by

the USVI Division

of Banking Insurance,

and Financial

Regulation;

its BVI

regulation by

the BVI

Financial Services

Commission; and

in

the

state

of

Florida

are

subject

to

and

by

the

Florida

Office

of

Regulation.

The

Financial Protection

Bureau (“CFPB”)

regulates FirstBank’s

consumer financial

products and

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

in

the

USVI

and

the

BVI,

and

eight

banking

in

the

state

of

Florida.

has

six

with

in

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

a

finance

company

specializing

in

the

of

small

loans

with

offices

in

Puerto

Rico;

First

of

Puerto

Rico,

a

Puerto

Rico

which

holds

assets;

an

international

banking

entity

(an

“IBE”)

under

the

Banking

Entity

Act

of

Puerto

Rico;

two

engaged

in

the

operation

of

certain

real

estate

owned

(“OREO”)

and

limited

in

under

the

laws

of

the

of

Puerto

Rico

and

Puerto

Rico

Tax

Incentive

Code

(“Act

of

2019”),

which

commenced

in

and

engages

in

and

lending transactions.

For a

discussion of

certain significant

events that

have occurred

in the

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

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

and

Banking

segment

of

the

lending

and

other

for

large

by

and

middle-market

clients

and

the

sector

in

the

Puerto

Rico

region.

The

and

Banking

segment

offers

loans,

real

estate

and

loans,

as

well

as

other

such

as

cash

and

A

portion

of

the

and

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

guarantees of the borrowers.

The Mortgage Banking segment consists of the origination, sale and

servicing of a variety of residential mortgage loan products

and

related hedging

activities in

Originations are

sourced through

different channels,

such as

FirstBank branches

and

from

mortgage bankers,

and

in

association

with

new

project

developers.

The

Banking

segment

focuses

on

originating

real

estate

loans,

some

of

which

conform

to

the

U.S.

Federal

Housing

(the

“FHA”),

the

U.S.

Veterans

(the

“VA”)

and

the

U.S.

of

Agriculture

Rural

(the

“RD”)

Originated

loans that meet

standards qualify for

insurance program whereas

loans that meet

the standards of

the VA

or the

RD are guaranteed by those respective federal agencies.

Mortgage loans that

do not qualify under

the FHA, the

VA

or the RD programs

are referred to as

conventional loans. Conventional

loans can

be conforming

or non-conforming.

Conforming loans

are residential

standards for

sale

under

the

U.S.

Federal

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

(“FHLMC”) programs.

do not

meet FNMA

or FHLMC

standards are

referred to

as non-conforming

estate

loans. The Mortgage

Banking segment also acquires

and sells mortgages

in the secondary

markets. Residential real

estate conforming

sold to

investors like

FNMA and

FHLMC. Most

of the

fixed-

rate, fully

amortizing, full

documentation loans.

has commitment

authority to

issue Government

National Mortgage

(“GNMA”)

(“MBS”).

Under

this

the

has

been

selling

FHA/VA

mortgage loans into the secondary market since 2009.

The

Banking

segment

of

the

lending

and

deposit-taking

mainly

through FirstBank’s

branch network

,

ATMs

and online

banking

in the

Puerto

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-

checking

and

savings

Individual

Retirement

Accounts

(“IRAs”)

and

retail

of

deposit

(“retail

CDs”). Retail

deposits gathered

through each

branch of

retail network

serve as one

of the

for its

lending

and investment

activities. This

segment also

includes the

insurance agency

activities in

through

FirstBank Insurance Agency.

Treasury and Investments

The

and

segment

is

for

the

and

The

function,

which

funding

and

lends

funds

to

the

and

the

the

Banking

and

the

United

States

to

finance

their

lending

The Treasury

segment also

obtains funding

through brokered

advances from the FHLB, and repurchase agreements involving investment

securities, among other possible funding sources.

United States Operations

segment

on the

U.S. mainland.

wide range of

banking services

to individual

and corporate customers,

primarily in southern

Florida through

eight banking

branches.

The

United

States

segment

offers

an

array

of

both

and

banking

and

Consumer banking

products include

checking, savings

and money

market accounts,

retail CDs,

internet banking

services, residential

mortgages,

home

equity

loans,

and

lines

of

credit.

Retail

as

well

as

FHLB

and

CDs

to

this

segment, serve as funding sources for its lending activities.

banking

include

savings

and

money

market

retail

CDs,

internet

banking

cash

remote

deposit

capture,

and

automated

clearing

house

(“ACH”)

Loan

include

the

traditional commercial and industrial

(“C&I”) and commercial real

estate products, such as lines

of credit, term loans

loans.

Virgin Islands Operations

The Virgin

Islands Operations segment

consists of all

banking activities

conducted by

FirstBank in the

USVI and the

BVI regions,

and

banking

services, with

a total

of eight

banking

branches serving

the islands

of St.

Thomas,

St.

Croix,

and

St.

John

in

the

USVI,

and

the

island

of

Tortola

in

the

BVI.

The

Virgin

Islands

segment

is

driven

by

its

consumer, commercial lending and deposit

-taking activities.

Loans

to

include

auto

loans,

lines

of

credit,

and

and

loans.

Deposit

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

is

committed

to

supporting

our

clients,

and

communities

in

which

we

serve.

Our

Corporate Sustainability program,

which includes environmental,

social and governance

(“ESG”) matters, builds

on the Corporation’s

core

values,

being

a

socially

company.

The

sees

ESG

as

a

step

towards a sustainable, inclusive and successful future.

During

2021,

the

adopted

an

ESG

through

which

it

and

its

sustainability

and

overarching

policy.

In

2023,

the

evolving

its Corporate

the

publication

of

its

annual

First

Report

for

(the

“2022

Report”).

The

Report

on

a

wide

range

of

ESG

topics,

and

oversight;

ethics

and

compliance;

and

sales

practices;

ESG

integration

in

credit

analysis;

data

and

cyber

management;

people and culture; community impact; and environmental stewardship.

ESG Governance

Board of Directors and

executive leadership team

share responsibilities relating

to oversight of our

ESG policies

and practices. In

February 2022, the

Corporate Governance and

Nominating Committee of

the Board of

Directors amended its charter

to

include

of

ESG

and

it

has

primary

of

ESG

and

disclosures.

Nonetheless, other committees

Board of Directors

also play a role

in ESG oversight in

matters related to

risk and

cybersecurity management, human capital management, investment management

and credit risk management.

As

part

of

the

ESG

set

forth

in

FirstBanCorp.’s

Policy,

which

was

by

the

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,

of leaders

from different

areas, such

as Human

Resources,

Risk

and

Relations,

Legal

and

Affairs,

Marketing,

Compliance,

Finance,

and

Audit.

The ESG

is

tasked

with

aligning

priorities

and

initiatives

for

the

year,

setting

and

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

strives to be

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

lives

and

satisfying

and

evolving

work

experience.

The

core

of

our

employer

value

proposition,

“The

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

success, professional development, and work environment.

Employees

As of

had 3,168

regular employees

representing a

1% increase

in overall

headcount from

2,797 employees

in the

region, 209

employees in

region,

and

in

the

Virgin

Islands

region.

As

of

31,

2023,

67%

of

the

total

population and 57% of management positions were women.

Our

Human

Resources

reports

to

the

Chief

Risk

Officer

and

manages

all

elements

of

the

human

capital

and

talent

talent

acquisition,

engagement,

learning

and

development, compensation and benefits.

The Human

Resources Division’s

efforts are

also overseen

by the

Chief Executive

Officer (CEO)

and the

team

through

regular

work-related

interactions.

Our

leaders

focus

on

strengthening

and

and

maximizing

collaboration

between

departments

and

talents

by

promoting

an

open-door

culture

that

stimulates

frequent communication

between employees

and management.

This provides

more opportunities

employees' needs,

obtain

about

their

work-life

and

act

upon

such

to

improve

engagement.

In

the

Board

of

and

its

and

Benefits

monitor

and

are

updated

on

the

Corporation’s human capital management

strategies.

Talent

is an equal opportunity

employer which considers qualified candidates

for employment to fill its

open positions. We

focus

our

efforts

on attracting

and

the

best

talent for

college

graduates,

and promoting

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

with

universities through internship programs and career forums;

●

Collaboration with hiring managers to ensure an accurate match between

roles and candidates to accelerate the recruitment

process and secure top candidates;

●

A robust management information system to enhance the effectiveness

of the recruitment process and provide candidates with

a unique experience;

and

●

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

’

induction process, including assignment of a “FirstPal”

from day one to help with the organizational culture

transition and learning process.

We

believe

that financial

is critical

for

our employees.

Our goal

is to

levels that

are competitive

market

and comparable

job categories

in similar

organizations.

Our salary

administration

program

is designed

to provide

a

that

is

consistent

with

our

level

of

to

attract

the

best

talent

for

each

job

and

commensurately pay for performance.

to base

salaries, some

job positions

are eligible

to participate

in variable

pay programs.

has incentive

for

revenue

generation

and

sales

support

units.

The

incentive

are

to

align

them

to

and

ensure

sound

risk

the

Award

Program

and

rewards

outstanding performance

for exempt

employees who

do not

participate in

other variable

pay programs.

also

has a

incentive plan

for top-performing

leaders and

employees with

high potential.

These programs

provide awards

based

upon

the

and

individual’s

and

are

key

for

the

attraction

and

of

the

best

talent.

The

investment in its

employees has resulted

in a stable-tenured

workforce, with an

average tenure of

10 years of service

as

of December 31, 2023, and

a voluntary turnover rate of 10.97%,

mostly related to hourly employees

in call centers, collections centers

and branches. The Corporation measures turnover among high performers

;

such employees’ turnover rate was 2.8% for 2023.

Talent Development

and Engagement

We

believe

that a

culture of

learning and

maximizes the

talent of

human

capital and

is the

foundation for

business success. Our commitment to employee engagement continues

throughout employees’ time with the Corporation.

Our

learning

and

program

strives

to

reflect

both

and

the

organization’s

needs.

The

offers

more

than

8,000

opportunities

through

online

courses

and

in-person

or

virtual

classes,

as

well

as

special

projects,

and

partial

tuition

reimbursement

to

complete

a

bachelor’s

or

master's

degree

to

eligible

employees.

Training

is

offered on

various subjects within

five areas: fundamentals,

compliance and corporate

governance, specialized technical

subjects, soft

skills-professional development, and leadership skills.

In 2023

we provided

over 92 training

topics through

virtual and

in-person modalities

allowing our

employees to

continue learning

and complete development

plans. In 2023,

we delivered more

than 98,000 hours

of training and

each employee completed

of 31 training hours.

Every

year

around

new

and

supervisors

and

receive

in

and

talent

In addition, our leadership curriculum also

has a program to strengthen skills of

supervisors that includes several days of

and

to

review

their

skills after

by

co-workers.

For

new

supervisors,

we

offer

a

program

to

train

in

basic

and

communication

skills,

and

our

human

and

In

our

program

for

active

supervisors

and

leaders

to

review

their

skills

with

received from

instructors and

co-workers.

The program

delivered

to 61%

of our

current leaders

since its

launch,

accounting for over 22,000 training hours.

In addition to these training opportunities, we have processes

to promote professional development and career

growth, including the

promotion of internal

career opportunities, performance

management processes, annual

talent review,

and robust succession

planning.

We

also

encourage

to

participate

in

our

to

our

communities

through

our

volunteer

and

reinvestment programs.

In 2023, our

employees supported 32

organizations with

more than 2,154

hours of volunteer

work. The Bank

also

its

to

serve

on

non-profit

organizations’

boards

of

directors.

In

2023,

First

BanCorp

were

members

of

the

board

of

for

non-profit

across

the

Puerto

Rico,

and

Virgin

Islands

regions

and

offered approximately 2,276 hours of service.

Health & Wellness

Health

and

well-being

are

a

strong

component

of

the

we

provide

to

our

employees.

First

competitive benefits

programs to

address even

pressing needs

of our

their families

to promote

occupational,

physical,

emotional,

health.

Our

wellness

package

health,

dental

and

vision insurance

offered

through

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,

a defined contribution

retirement plan option

where both employee

and employer contribute.

In addition, the Corporation

offers a fitness facility

in its main offices

which allows employees to

participate

in fitness activities including instructor-led wellness sessions.

To

promote

work-life

we

grant

a

variety

of paid

time off

for

vacation,

sick,

maternity

and

paternity

leave,

bereavement

leave, marriage and personal days,

in-house health services, and a complete

wellness program, including nutrition, fitness,

health fairs,

finance

education,

and

preventive

healthcare

nursing

among

others.

The

subsidizes

a

portion

of

the

cost

of

these

benefits.

Also,

more

flexible

work

were

across

the

hybrid

work

for

the

Florida

region

and

certain

groups

in

Puerto

Rico,

such

as

Audit

and

Risk

Management.

Flexible

are

constantly

under

review

for

expansion

and

amendment

to

demands

and

employees’ needs.

MARKET AREA AND COMPETITION

The

in

highly

markets

and

is

subject

to

and

and contingencies.

In particular,

market

is highly

competitive in

the main

service

area of

also had presence

in the state

of Florida

and in the

USVI and

the

BVI.

Puerto

Rico

banks

are

subject

to

the

same

federal

laws,

and

that

apply

to

similar

on

the

United States mainland.

Competitors include

other banks,

insurance companies,

companies, small

loan companies,

automobile financing

leasing companies,

brokerage firms

with retail

credit unions

and certain

retailers that

operate in

Puerto

Rico,

the

USVI,

the

BVI,

and

the

state

of

as well

as

(“fintech”)

and

competition

from

digital

The

compete

with

these

other

firms

with

respect

to

the

range

of

and

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

and

its

bank

are

subject

to

federal

and

Puerto

Rican

and

regulation.

These

and

apply

to

all

aspects

of

the

and

the

including commercial

and consumer

lending, deposit

taking, management,

governance and

other activities.

As part

of this

framework, the

to extensive

consumer financial

regulatory legal

and supervisory

U.S.

and

is

dynamic

in

nature,

and

and

are

subject

to

change

as

new

and

actions

are

taken.

See

Part

I,

Item

1,

above

for

and

of

Agency.

Future

may

the

and

of

the

Corporation and the

Bank. Any change in

applicable laws or regulations,

however, may

have a material adverse

effect on the business

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

is also

the disclosure

and

regulatory requirements

of the

Securities Act

of 1933,

as amended,

and

the

Act

of

1934,

as amended,

both

as administered

by

the

SEC, as

well

as the

rules

to

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

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,

examination by the

Federal Reserve Board.

is required to

file with

Reserve Board

periodic and

annual reports

information concerning

its own

business operations

and those

of its

The Bank Holding

Company Act also permits

a bank holding company

to elect to become

a financial holding

company and engage

in

a

broader

range

of

activities.

The

has

elected

to

be

a

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

of

or

the

system

generally.

The

Bank

Holding

Company

Act

provides that

activities have

been determined

to be

“financial in

nature”: (i)

lending, trust

banking activities;

(ii) insurance activities; (iii) financial

or economic advice or services; (iv)

pooled investments; (v) securities underwriting

and dealing;

(vi) domestic activities

permitted for an

existing bank holding

company; (vii) foreign

activities permitted for

an existing bank

holding

company; and (viii) merchant banking activities.

A

holding

company

that

ceases

to

meet

certain

is

subject

to

a

variety

of

restrictions,

on

the

precluding

the

undertaking

of

new

or

the

of

shares

or

control

of

other

companies.

Until

is

restored,

the

Federal

Reserve

Board

has

broad

discretion

to

impose

on

the

activities. The Corporation

and FirstBank must

be “well-capitalized”

and “well-managed”

for regulatory

purposes,

and

must

earn

“satisfactory”

or

better

ratings

on

its

Reinvestment

Act

(“CRA”)

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

Under

federal

law

and

Federal

Reserve

Board

policy,

a

bank

holding

company

such

as

the

is

to

act

as

a

source of strength

to its banking

subsidiaries and to

commit required

levels of support

to them. This

support may be

required at times

when,

absent

such

policy,

the

bank

holding

company

might

not

provide

such

support.

In

the

event

of

a

bank

holding

bankruptcy,

any

by the

bank holding

company

to a

federal bank

agency to

maintain capital

of a

subsidiary bank will

be assumed by

the bankruptcy trustee

and be entitled

to a priority

of payment. In

addition, any capital

loans by a

bank

holding

company

to

any

of

its

banks

must

be

in

right

of

payment

to

and

to

certain

other

indebtedness

of

such

bank.

As

of

31,

2023,

and

the

date

hereof,

was

and

is

the

only

banking

subsidiary of the Corporation.

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

in General

the OCIF,

the CFPB

and the

FDIC, and

to comprehensive

federal

and state

(including, for

this purpose,

Rico) regulations

that regulate,

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

examine

to

test

the

conformance

to

safe

and

sound

banking

practices and

various statutory

requirements. This

oversight establishes

of

permissible

and

the

by

the

FDIC

is

also

for

the

of

the

FDIC’s

fund

and

depositors.

These

have

discretion

in

with

their

and

and

examination policies, including policies

with respect to the classification of

assets and the establishment of adequate

loan loss reserves

for regulatory purposes.

Their enforcement authority

includes, among other

things, the ability to

assess civil monetary

penalties, issue

cease-and-desist

or

removal

orders,

and

initiate

injunctive

actions

against

banking

and

institution-affiliated

In

general,

these

actions

may

be

initiated

for

violations

of

laws

and

and

for

engaging

in

unsafe

or

unsound

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

have implemented

rules for

U.S. banks

that establish

minimum

requirements, the

of

and

the

risk-based

capital

of

bank

assets

and

sheet

exposures.

These

rules

apply

to

the

and

and

are

to

align

U.S.

capital

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,

to be

capitalized and

not subject

to the

above-described

to maintain:

(i) a

minimum

Tier

1 Capital

(“CET1”)

to risk-weighted

assets

4.5%, plus

the 2.5%

“capital conservation

buffer,”

resulting in

a required

minimum CET1

7%; (ii)

a

minimum ratio

of total Tier

1 capital to

risk-weighted assets

of at least

6.0%, plus

the 2.5% capital

conservation buffer,

resulting in

a

minimum Tier

1 capital

8.5%; (iii)

a minimum

total Tier

1 plus

Tier

2 capital

to risk-weighted

assets of

at

least 8.0%, plus

the 2.5% capital

conservation buffer,

resulting in a required

minimum total capital ratio

of 10.5%; and

(iv) a required

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

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

as part

of its

to the

impact

of COVID-19,

31, 2020,

federal banking

issued an

interim final

rule that provided

the option to

temporarily delay

the effects of

current expected

credit losses (“CECL”)

on regulatory capital

for two

years,

followed

by

a

period.

The

interim

final

rule

that,

at

the

of

a

banking

the

initial

impact

of

the

of

CECL

on

plus 25%

of

the

change

in

the

ACL

(excluding

purchased credit deteriorated (“PCD”)

loans) from January

1, 2020 to December 31,

2021 will be delayed for

two years and phased-in

at 25%

per

year

on

January

1,

over

a

period,

in

a

total

period

of

five

years.

The

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

capital over the five-year transition period.

and the

Bank compute

risk-weighted assets

Standardized Approach

required by

the Basel

III rules.

The

Standardized

Approach

expands

the

risk-weighting

from

the

four

major

under

the

capital

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

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

assets.

Specific changes to the

risk-weightings of assets included,

among other things: (i) applying

a 150% risk weight instead

of a 100% risk

weight for high

volatility commercial real

estate acquisition, development

and construction loans,

(ii) assigning a 150%

risk weight to

exposures that are 90

days past due (other

than qualifying residential mortgage

exposures, which remain at

an assigned risk-weighting

of 100%),

(iii) establishing

a 20%

credit conversion

factor for

the unused

portion of

a commitment

with an

original maturity

of one

year or less that

is not unconditionally

cancellable, in contrast

to the 0% risk-weighting

under the prior

rules and (iv) requiring

capital

to be maintained against on-balance-sheet and

off-balance-sheet exposures that result from certain

cleared transactions, guarantees and

credit derivatives, and collateralized transactions (such as repurchase

agreement transactions).

In

the

Collins

Amendment

to

the

Dodd-Frank

Act,

among

other

things,

eliminates

certain

trust-preferred

(“TRuPs”)

from

Tier

capital.

issued

under

the

U.S.

Treasury’s

Asset

Relief

Program

(“TARP”)

are

exempt from

this change.

Bank holding

companies, such

as the

Corporation, were

fully phase

out these

instruments from

Tier

capital

by

January

1,

2016;

however,

these

may

remain

in

Tier

capital

until

the

are

or

matured.

As of

2023,

had $156.9

million

in TRuPs

that were

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

Well-Capitalized

Minimum

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%

(1)

10.78%

11.45%

5.00%

(1) Tier 1 capital to average assets.

Stress-Testing

and Capital Planning Requirements

Federal

do

not

impose

formal

stress-testing

on

banking

with

total

assets

of

less

than $100

billion, such

as the Corporation

and FirstBank.

have indicated

through interagency

capital planning

and risk

practices of

institutions with

total assets

of less

than $100

billion will

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

to perform

internal stress

testing as

part of

its annual

capital planning

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

unless

its

net

income

to

common

for

the

past

four

quarters,

net

of

paid

during

that

period,

has

been

to

fully

fund

the

and

the

rate

of

retention

appears

to

be

consistent with the organization’s

capital needs, asset quality,

and overall current and prospective financial condition. Furthermore,

the

Federal

Reserve Board’s

rule (Regulation

Q) limits

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

certain restrictions

generally imposed

on Puerto

Rico corporations

to the declaration

and payment

of dividends

(i.e., that

dividends may

be paid

out only

capital surplus

or,

in the

absence of

such excess,

net

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

The principal

funds for

as a

parent holding

company,

is dividends

declared and

paid by

its subsidiary,

FirstBank. The

FirstBank to

declare and

pay dividends

on its

capital stock

is regulated

by the

Banking Law

of

1933,

as

amended

(the

Rico

Banking

Law”),

the

Federal

Deposit

Act

(the

“FDIA”),

and

FDIC

In

general

terms,

the

Puerto

Rico

Banking

Law

that when

the

of a

bank

are greater

than

receipts,

the

excess

of

expenditures over

receipts shall

against undistributed

profits of

the bank

and the

balance, if

any,

shall be

charged

against

the required

reserve fund

of the

bank. If

fund is

not sufficient

to cover

in whole

or in

part, the

amount must

against the

capital account.

Rico Banking

Law provides

that, until

said capital

restored to its original

amount and the reserve

fund to 20% of

the original capital, the

bank may not declare

any dividends. In general,

of

the

FDIA

and

the

FDIC

restrict

the

payment

of

when

a

bank

is

undercapitalized

(as

in

Prompt

Corrective

Action

below),

when

a

bank

has

failed

to

pay

or

when

there

are

safety

and

concerns

regarding such bank.

Refer

to

Part

II,

Item

5,

“Market

for

Registrant’s

Common

Equity,

Related

Stockholder

Matters

and

Issuer

Purchases

of

Equity

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

’s distribution of dividends and repurchases

of common stock.

Consumer Financial Protection Bureau

The CFPB has

primary examination

and enforcement authority

over FirstBank and

other banks with

over $10 billion

in assets with

respect to consumer financial products and services.

The

CFPB’s

primary

include

the

of

persons”

(broadly

defined

to

include

any

person

offering

or

providing a consumer

financial product or

service and any

affiliated service

provider) for compliance

with federal consumer

laws.

It

implements

to

and

has

primary

to

enforce

the

federal

laws,

the

Equal

Credit Opportunity Act, the Truth

in Lending Act (“TILA”) and the

Real Estate Settlement Procedures Act (“RESPA”),

The

CFPB

also

has

broad

powers

to

prescribe

rules

to

a

covered

person

or

service

provider

in

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,

adjustments and

options for

avoiding

“force-placed”

insurance.

the

CFPB has

adopted

rules and

forms

that

combine

certain

that

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

from

engaging,

for

their

own

account,

in

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

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

the

federal

agencies,

as

part

of

the

general

of

supervised

banks,

to

assess

a

record of meeting the

credit needs of its

community,

assign a performance rating,

and take such record

and rating into account

in their

applications by

such bank,

such as

an application

for approval

of a

merger

or the

a branch.

A

rating of

less than “satisfactory”

could result

in the denial

of such applications.

The CRA

also requires

all institutions

to make

public

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

its most recent examination by the FDIC.

In

October

2023,

the

U.S.

federal

banking

issued

a

final

rule

to

strengthen

and

modernize

their

implementing the

CRA. The

things, revises

the CRA

regulations to

better achieve

the CRA’s

core purpose

of

encouraging banks to help

meet the credit needs

of their local communities;

provides greater clarity

and consistency in the

application

of CRA regulations;

tailors performance standards,

data collection, and reporting

requirements to account

for differences in

bank size,

business model,

and local

conditions; and

promotes a

consistent regulatory

approach that

applies to

banks regulated

by the

OCC, the

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

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

1, 2026,

and January 1, 2027.

USA PATRIOT

Act and Other Anti-Money Laundering Requirements

As a regulated

depository institution,

FirstBank is subject

to the

Bank Secrecy

Act, which imposes

a variety of

reporting and

other

the requirement

to file

suspicious

activity and

currency

reports that

in the

detection and prevention

of money laundering,

terrorist financing and

other criminal activities.

In addition, under

Title III

of the USA

PATRIOT

Act of 2001,

all financial institutions

are required to

identify their customers,

adopt formal and

comprehensive anti-money

laundering programs,

scrutinize or

prohibit certain

transactions of

special concern,

and be

prepared to

respond to

inquiries from

U.S.

law enforcement agencies concerning their customers and their transactions.

In

January

2021,

major

to

U.S.

became

through

the

enactment

of

F

of

the

Defense

Authorization

Act

for

fiscal

year

2021,

known

as

the

Anti-Money

Laundering

Act

of

(the

“AML

Act”).

The

AML

Act

a

variety

of

to

modernize

the

regime

and

remediate

gaps

in

the

U.S.’s

to

and

countering

the

of

terrorism,

creation of

a national

database of

absence corporate

beneficial ownership

along with

significantly enhanced

penalties

for

Bank

Secrecy

Act

violations,

clarification

of

Suspicious

Activity

Report

filing

and

sharing

and

addressing

the

adverse

of

“de-risking,”

namely,

the

practice

of

institutions’ termination or

limitation of business relationships

with clients or classes

of clients in order

to manage the risks

with such clients.

Regulations implementing the Bank Secrecy Act and the USA

PATRIOT

Act are published and primarily enforced by

the Financial

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

Failure of a financial institution, such as the Corporation

or

the

Bank,

to

comply

with

the

of

the

Bank

Secrecy

Act

or

the

USA

PATRIOT

Act

could

have

serious

legal

and

for

the

institution,

the

possibility

of

or

other

legal

actions,

such

as

civil

penalties.

The

is

also

to

comply

with

federal

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

These

require

of

privacy

to

and,

in

some

allow

consumers to prevent disclosure of certain personal information to

a non-affiliated third party.

The

federal

banking

issue

to

enhance

cyber

risk

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

management is

to

to

respond

and

recover

the

after

a

cyber-attack.

A

is

also

to

develop

to

enable

of

data

and

if

a

service

provider

of the

falls victim

to this

type

of

a cyber-attack.

Our Corporate

Program

(“CISP”) reflects

these

and

outlines

our

overall

vision,

direction,

and

efforts

to

protect

the

and

availability of customer information and prevent access by unauthorized

personnel.

In

July

2023,

the

SEC

adopted

rules

requiring

registrants

to

disclose

they

experience

and

to

disclose on

an annual

basis material

regarding their

risk management,

and governance.

The new

rules

require

registrants

to

disclose

on

the

new

Item

1.05

of

Form

8-K

any

they

to

be

within

four

days

of

such

and

to

describe

the

aspects

of

the

incident’s

nature,

scope,

and

timing, as

well as

its material

impact or

reasonably likely

material impact

on the

registrant. The

new rule

also added

Regulation S-K

Item 106,

which requires

disclosure of

the registrant’s

processes, if

any,

for assessing,

identifying, and

managing material

threats,

as

well

as

the

effects

or

likely

effects

of

risks

from

threats

and

previous cybersecurity

incidents on

the new

Cybersecurity of