FIRST BANCORP PR

Below

is a

about material

risks

and

uncertainties that

could

impact

businesses,

results

and financial condition,

including by causing

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

or

its management

deems

to

be

immaterial,

could

also

affect

in

future periods. Thus, the following

should not be considered a complete

discussion of all of the risks and

uncertainties the Corporation

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

this Form 10-K.

THE BUSINESS ENVIRONMENT AND OUR INDUSTRY

The effect

of the

current interest

rate environment

rates or

or composition

of the

assets

and

may

impact

the

net

income,

net

margin,

loan

originations,

deposit

attrition,

overall results of operations, and its liquidity position.

income is

the difference

between the

amounts received

by us

on our

interest-earning assets

and the

interest paid

by us

on

our

Differences

in

the

re-pricing

of

our

assets

and

may

result

in

changes

in

our

profits when

change. For

instance, higher

increase the

cost of

mortgage and

other loans

to consumers

and

businesses and

may

reduce

future demand

for such

may

profits by

reducing

of loan

income

due

to declines

in

volume.

rates

to many

factors

that

are beyond

our

general

trends,

changes

in

spending

and

debt

and

of

various

governmental and regulatory agencies, in particular,

the Federal Reserve Board.

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

instruments with

maturity and

occurs when

market rates

for

different financial

instruments or

the indices

used to

price assets and

liabilities change

at different

times or

by different

amounts. For

example, the interest expense

for liability instruments might

not change by the

same amount as interest income

received from loans

or

investments.

To

the

extent

that

the

rates

on

loans

and

change

at

rates

and

by

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

rates may

impact demand

for new

loan originations,

affect the

composition of

interest-

earning

assets,

and

may

impact

the

extent

of

any

re-shifting

between

non-interest-bearing

and

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

impact regulatory capital ratios.

Changes in prepayments may adversely affect net interest income.

Net

income

could

also

be

by

of

MBS.

when

rates

rise,

of

and

will

decrease,

and

the

duration

of

MBS

will

increase.

Conversely,

when

rates

fall,

of

and

will

and

the

duration

of

will

decrease.

Such

acceleration

in

the

of

MBS

would lower yields on

these securities, as the amortization

of premiums paid upon

the acquisition of these securities

would accelerate.

Conversely,

acceleration in

the prepayments

of MBS

would increase

yields on

securities purchased

at a

discount, as

the accretion

of

the discount

would

accelerate. Also,

income

periods might

by our

in callable

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

The

in

the

or

rumored

of

other

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

into receivership

with

the

FDIC of

certain

large

U.S.

banks

with

assets over

$100

billion

in

March

and

May

2023,

and

adverse

developments

other

banks,

in

heightened

levels

of

market

and

consequently

confidence

in

the

safety

and

of

institutions.

These

developments

resulted in certain

regional banks experiencing

higher than normal

deposit outflows and

an elevated level

of competition for

deposits in

the market.

The impact

of market

volatility from

the adverse

developments in

along with

elevated

on our

business and

related

financial results,

will depend

on future

developments,

which

and difficult to predict.

In

the

aftermath

of

these

bank

failures,

the

banking

have

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

to

recover

the

loss

to

the

DIF

with

the

closure

of

Silicon

Valley

Signature Bank

first half

will collect

the special

assessment at

a

quarterly rate of 3.36 basis points beginning with

the first quarterly assessment period of 2024 (i.e, January

1 through March 31, 2024)

with an initial invoice

payment date of

June 28, 2024,

and will continue

to collect special

assessments for an

anticipated total of

eight

The

base

for

the

special

is

equal

to

the

for

the

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

a

charge

of

$6.3

million

in

the

of

income

as

part

of

“FDIC deposit insurance

expenses,” which reflects

the expected total

payment to be

made to the FDIC

31, 2023. The

FDIC retains

to cease

collection early,

collection period

beyond the

eight-quarter collection

period,

or

impose

an

shortfall

special

on

a

one-time

basis

after

the

receiverships

for

the

two

banks

are

terminated.

Difficult

market

and

general

have

the

and

could

affect

us

in

the

future.

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

U.S. and given the degree of interrelation between

Puerto Rico’s economy

of the

U.S., we

are exposed

to downturns

in the

U.S. economy,

including factors

such as

employment levels

in the

real

estate

valuations.

The

of

these

has

us

in

the

past

and

in

the

future

could

affect

the

credit

of

loans,

and

result

in

write-downs

of

asset

values

by

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

may be impaired

if the models

and approaches

we use to

select,

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

●

The

models

used

to

losses

in

the

credit

those

under

CECL,

require

difficult,

subjective, and

complex judgments,

including forecasts

how these

economic predictions

might

impair

the

ability

of

the borrowers

to

repay

their

may

no longer

be

accurately estimated

and

which

may,

in

turn, impact the reliability of the models.

●

Our

ability

to

borrow

from

other

or

to

engage

in

sales

of

loans

to

third

parties

loan

with

GSEs

and

agreements)

on

terms,

or

at

all,

could

be

by

further

disruptions

in

the

capital

or

credit

markets

or

other

events,

deteriorating

●

Competitive dynamics

in the

industry could

change as

a result

of strategic

growth opportunities

with current

market conditions.

●

future

of

our

may

our

costs

and

limit

our

ability

to

pursue

opportunities.

●

There may be downward pressure on our stock price.

Any deterioration

conditions in

and disruptions

in the

financial markets

affect our

access capital,

our business,

financial condition,

and results

of operations.

Unfavorable or

uncertain economic

and market

have

been

and

could

cause

declines

in

growth,

or

or

confidence;

on

the

availability or

increases in

and capital;

increases in inflation

or interest rates;

high unemployment;

natural disasters;

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

the

loan

is

by

home

values

and

has

been

cyclical,

enjoying periods of strong growth and profitability followed by periods of

shrinking volumes and industry-wide losses. During periods

of rising

the series

of interest

rate increases

occurred, the

of many

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

existing mortgage loans are reduced.

Any sustained

increased delinquencies,

foreclosures, or

losses could

adversely affect

to sell

loans, the

prices

we receive

for loans,

the values

of mortgage

for sale,

or residual

interests in

securitizations, which

affect

our

and

results

of

In

any

decline

in

real

estate

values

would

further

weaken the loan-to-value

ratios and increase

the possibility of

loss if a

borrower defaults. In

such event, we

will be subject

to the risk

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

by third-party credit enhancements.

We operate in a highly

competitive industry and market area.

We

face

competition

in

all

areas

of

our

from

a

variety

of

competitors,

other

banks,

banking

small

loan

automobile

leasing

brokerage

firms

with

retail

credit

unions,

certain

retailers,

fintech

and

digital

The

ability

to

compete

depends

on

the

relative

of

its

the

degree

to

which

the

of

its

appeal

to

and

the

extent

to

which

the

meets

clients’

needs

and

The

ability

to

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

personnel, and on its reputation.

The

encounters

intense competition

in attracting

and

and

in

its consumer

and

lending

activities. The

competes for

other financial

institutions.

originate loans

depends

primarily on the rates and

fees charged and the

service it provides to its borrowers

in making prompt credit

decisions. There can be

no

assurance that

in the

future the

be able

to increase

its deposit

base, originate

or on

the terms

on

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

credit quality and

the value of the

portfolio of Puerto

Rico government securities

has been, and

in the future

may

be,

by

Puerto

and

may

be

by

actions

taken

by

the

Puerto

Rico

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

economic challenges in Puerto Rico.

portion

of the

business activities

and credit

in the

Commonwealth of

Puerto

Rico, which has undergone significant economic challenges

and debt reforms over the last decade.

On

June

15,

2023,

the

Puerto

Rico

Board

(“PRPB”)

the

updated

Report

to

the

Governor,

which

an

of

Puerto

economy

during

fiscal

year

and

a

for

fiscal

years

and

to

the

PRPB,

Puerto

real

gross

product

(“GNP”)

by

3.7%

in

fiscal

year

2022,

which

was

the

highest annual real GNP

growth registered in Puerto

Rico since fiscal year 1999.

The growth was primarily driven

by a sharp increase

in personal

expenditures reflecting

8.5% when

to fiscal

year

2021,

in

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

partially offset by an increase in imports of 10.3%.

The

Fiscal

Plan

prioritizes

resource

across

three

major

pillars:

(i)

entrenching

a

legacy

of

strong

financial management

agenda, (ii)

instilling a

culture of

public

-sector

and excellence

to properly

delivery quality

public services,

investing for

economic growth

revenues are

generated to

support the delivery

of services. According

to the Transformation

Plan, the fiscal

and economic turnaround

of Puerto Rico cannot

be accomplished without the implementation

of structural economic reforms

that promote sustainable economic

development.

These

reforms

include

power/energy

sector

reform

to

improve

availability,

and

affordability

of

energy,

education

reform

to

expand

and

prepare

the

workforce

to

compete

for

jobs

of

the

future,

and

an

infrastructure

reform

aimed

at

improving

the

of

the

economy

and

facilitating

investment.

The

Fiscal

Plan

that

these

reforms,

if

successfully,

will contribute

0.75% in

GNP growth

by fiscal

year

a

roadmap

for

a

tax

reform

towards

a

tax

regime

that

is

more

for

and

more

equitable

for

individuals.

The

Fiscal

Plan

notes

that

Puerto

Rico

has

had

a

strong

in

the

aftermath

of

the

pandemic

crisis

with

labor

trending

positively

and

at

low

levels.

it

that

such

has

been

fueled

by

the

influx

of

federal

funds

which

have

an

outsized

and

impact

that

may

mask

underlying structural

weaknesses in

the economy.

projects a

0.7% decline

in real

GNP for

fiscal year

2023, followed

by a

near-zero

real growth

in fiscal

years 2024

through 2026.

Also, the

fiscal plan

projects that

population will continue the long-term

trend of steady decline. Notwithstanding,

the Transformation Plan depicts

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

the

cost

of

relief

Also,

the

Fiscal

Plan

the

$9.3

billion

in

relief

funds

to

be

deployed

in

fiscal

years

through

2025,

to

$4.5

billion

in

the

fiscal

plan.

the

Fiscal

Plan

to

account

for

$2.3

billion

in

federal

funds

to

Puerto

Rico

from

the

Bipartisan

Infrastructure

Law

towards improving Puerto Rico’s

infrastructure over fiscal years 2022 through 2026.

Corporation had $297.9

million of direct

exposure to the

its municipalities

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

$189.0 million of the exposure consisted of loans and obligations

of

municipalities in Puerto

Rico that are supported

by assigned property

tax revenues and

for which, in most

cases, the good

faith, credit

and unlimited taxing

power of the applicable

municipality have been

pledged to their

repayment, and $59.4

million consisted of

loans

and obligations which

are supported by one

or more specific sources

of municipal revenues.

The municipalities are

required by law

to

levy

special

taxes

in

such

amounts

as

are

for

the

payment

of

all

of

their

general

bonds

and

notes.

In

to

the

total

direct

also

$8.9

million

in

loans

to

an

of

PREPA,

$37.4

million in loans to

an agency of the

and obligations of the

Puerto Rico government, specifically

a residential

MBS

issued

by

the

PR

Housing

Finance

(“PRHFA”),

at

an

cost

of

$3.2

million

as

part

of

its

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

December 31, 2023).

In

as

of

31,

2023,

the

had

$77.7

million

in

to

loans

that

are

by the

PRHFA.

loans guaranteed

by the

PRHFA

are

secured

by

and

the

guarantees serve to cover

shortfalls in collateral in the event

of a borrower default.

The regulations adopted by

require the

adequate reserves

to guarantee

the solvency of

its mortgage

loans insurance program

.

As of June

30, 2022,

recent date

as of

which information

is available,

had a

liability of

approximately $1

an estimate

of the

losses

inherent in the portfolio.

had $2.7 billion

of public

sector deposits in

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

Instability in economic conditions,

delays in the receipt of

disaster relief funds allocated

to Puerto Rico, and

the potential impact on

asset

values

from

past

or

future

natural

events,

when

added

to

Puerto

ongoing

fiscal

challenges,

could

materially adversely affect our business, financial condition, liquidity,

results of operations and capital position.

A

in

in

the

U.S.

Virgin

Islands

and

British

Virgin

Islands

could

harm

our

results

of

For many years, the

USVI has been experiencing

several fiscal and economic

challenges that have deteriorated

the overall financial

and

in

the

area.

on

May

22,

2023,

the

United

States

Bureau

of

Analysis

(the

“BEA”)

released its

estimates of

real gross domestic

product (“GDP”)

for 2021.

According to

the BEA,

the USVI’s

real GDP

increased 2.8%

in

after

decreasing

1.9%

in

The

in

real

GDP

in

exports

and

expenditures.

These

were

partly

offset

by

in

private

inventory

private

fixed

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

over

$5.0

billion

in

funds

were

disbursed

as

of

and

$6.2

billion

were

obligated funds

waiting to

be disbursed.

On the

fiscal front,

revenues have

trended positively

and the

completed the restructuring

of the government

employee retirement system.

labor market trends

remain stable with

payroll

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

December 2022.

Finally, PROMESA

does not apply to

the USVI and, as such,

there is currently no federal

legislation permitting the restructuring

of

the debts of the USVI and

its public corporations and instrumentalities.

To the

extent that the fiscal condition of the

deteriorates

again,

the

U.S.

Congress

or

the

of

the

USVI

may

enact

allowing

for

the

of

the

of

the

USVI

or

imposing

a

stay

on

remedies,

by

making

PROMESA

applicable to the USVI.

the Corporation had $90.5 million

in loans to USVI public corporations,

compared to $38.0 million as of

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

and up to date on principal and interest payments.

We are subject to ESG risks that

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

There

is

an

focus

from

certain

investors,

partners

and

other

concerning ESG matters, and

the expectations related to

ESG matters are rapidly

evolving. The increased focus

by investors and other

on

the

ESG

of

publicly

traded

like

us,

has

or

may

in

the

future

include

expanding

mandatory

and

voluntary

diligence,

and

on

topics

such

as

climate

change,

human

labor

and

risk

and

could

expand

the

nature,

scope,

and

complexity

of

matters

that

we

are

to

assess

and

report.

These

requirements would likely

result in increased ESG-related

compliance costs, which

could result in

increases to our

overall operational

costs. Failure

to

adapt

to

or

comply

with

or

or

stakeholder

and

could

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

and our stock price.

For

we

may

be

exposed

to

publicity

based

on

the

identity

and

of

those

to

whom

we

lend

and

with

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

publicity

could

arise

from

adverse

news

in

media

and

could

also

spread

through

the

use

of

social

media

The

and

reputation

with

its

and

and

third

parties

with

which

we

do

could

be

damaged

if

we

were

to

become

the

subject

of

any

such

publicity. This,

in turn,

could have

an adverse

effect

on

to

attract

and retain

and

have

a

negative impact

on our

business, financial

we could

be criticized

by ESG

detractors

for the scope

or nature of

our ESG initiatives

or policies or

for any revisions

to these policies.

We

could also be

subjected to

responses by

governmental actors (such

as anti-ESG legislation

or retaliatory legislative

treatment) or consumers

(such as boycotts

or

negative publicity campaigns) that could adversely affect our reputation,

results of operations and financial condition.

Our results

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

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

expansion

of

such

conflicts

to

surrounding

areas

and

geopolitical

consequences;

global

climate

patterns,

in

water

stressed

regions;

or

other

catastrophic

events,

such

as

fires

or

other

disasters

occurring

at

our

locations, whether

occurring in

the U.S., or

internationally,

could cause

on the economy

and

disrupt

our

Certain

areas

in

which

our

is

concentrated,

Puerto

Rico

and

the

USVI,

are

susceptible

to

earthquakes,

hurricanes,

and

major

storms.

climate

change

may

both

the

frequency

and

of

extreme weather conditions and natural

disasters, which may affect our

business operations, either in a particular region

or globally,

as

well as the activities

of our customers.

is also not able

to predict the

positive or negative

effects that future

events or

changes to the U.S. or global economy,

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

Climate

change,

and

efforts

to

its

effects,

may

affect

the

Corporation's

and

Concerns over

the long-term effects

of climate change

have led and

will continue to

lead to governmental

efforts around

the world

to

those

impacts.

Consumers

and

also

may

change

their behavior

as a

result

of

these

concerns.

The

and

its

will

need

to

respond

to

new

laws

and

as

well

as

and

preferences

from

climate

change

concerns.

The

and

its

may

face

cost

increases,

asset

value

and

operating process

changes. The

impact on

will likely

vary depending

on their

specific attributes,

including reliance

on

our

role in

fossil fuel

activities. Among

the impacts

to the

we could

face reductions

in creditworthiness

on the

part

of

some customers

or in

the value

of assets

securing loans.

efforts to

take these

risks into

account in

making lending

and

other

our

with

climate-responsible

may

not

be

in

the

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

consumer or business behavior.

Deterioration in collateral values may result in additional losses.

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

our investments.

We

had a

in the

$5.7 billion

as of

Due to

their nature,

these loans

entail a

higher credit

risk than

consumer and

loans, since

they are larger

in size,

concentrate

more

risk

in

a

single

and

are

more

to

downturns.

in

the

case

of

a

slowdown

in the

market,

it may

be difficult

to dispose

of the

securing

these loans

upon any

of the

properties. We

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

deterioration in the quality of loans or because of sales

of

problem

loans,

which

would

likely

accelerate

the

of

losses. Any

such

losses

could

impact

our

overall

financial performance and results of operations.

Deterioration

of

the

value

of

real

estate

securing

our

and

loan

whether

located

in

or elsewhere,

would result

in increased

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

upon

the

of,

and

within,

each

real

estate

market.

As

of

31,

2023,

$2.5

billion, or

21% of

the total

investment, of

our commercial

consisted of commercial mortgage and construction loans

,

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

We

measure credit

collateral dependent

loans based

on the

of the

collateral, which

obtained from

appraisals, adjusted

for undiscounted

selling costs

as appropriate.

Updated appraisals

are obtained

when we

and

are

updated

thereafter.

In

appraisals

are

also

for

certain

loans on a spot

basis based on specific

characteristics, such as delinquency

levels, and age of

the appraisal. The appraised

collateral may decrease, or we may

not be able to recover collateral at

its appraised value. A significant decline

in collateral valuations

for

loans

has

and,

in

the

future,

may

require,

in

our

credit

loss

expense

on

loans. Any

such

increase would have an adverse effect on our future financial condition

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

impact

their

and

could

lead

to

reduced

cash

flow

and

in

making

loan

repayments.

The

has

also

been

by

the

shortage

of

workers,

as

well

as

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

financial institutions.

Financial institutions

are interrelated

as a result

of trading,

clearing,

and

other relationships.

We

have

to different

industries

and

and

routinely

execute

with counterparties

in the financial

services industry,

including brokers

and dealers,

commercial banks,

investment banks,

companies and other

institutional clients. In

certain of these transactions,

we are required to

post collateral to secure

the obligations to

the

counterparties.

In the

event

of

a bankruptcy

or

insolvency

proceeding

one of

such counterparties,

we

may

experience

delays in recovering

the assets posted as

collateral, or we

may incur a

loss to the extent

that the counterparty

was holding collateral

in

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

In addition, many of these transactions

expose us to credit risk in

the event of a default by our

counterparty or client. The credit

risk

may be exacerbated when

the collateral held by us cannot

be realized or is liquidated

at prices not sufficient

to recover the full amount

of the loan

or derivative

exposure due to

us. Any losses

resulting from

our routine funding

transactions may

materially and adversely

affect our financial condition and results of operations.

THE CORPORATION’S

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

prove insufficient and/or costly to replace.

relies

on

the

of

CDs,

and

from

the

FHLB

of

New

York

to

maintain its lending

activities and to replace

certain maturing liabilities.

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

approximately 11

months.

None of

these brokered

CDs are

callable at

option. In

the Corporation had $500.0 million

of long-term FHLB advances outstanding

as of December 31, 2023, which mature

over one to five

years.

Although FirstBank has historically been

able to replace maturing deposits and

advances, we may not be able

to replace these funds

in the future if our financial condition or general market

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

sources, our

results of operations and liquidity would be adversely affected.

Alternate

sources

of

funding

may

carry

higher

costs

than

sources

utilized.

If

we

are

to

rely

heavily

on

more

expensive funding sources, profitability would be adversely affected.

We

may

to

seek

debt

in

the

future

to

achieve

our

objectives.

if

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

not be on acceptable terms. The availability of additional

financing will depend

on

a

variety

of

such

as

market

the

general

of

credit,

our

credit

ratings

and

our

credit

capacity.

In

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

access new

non-deposit

funding

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

current credit

ratings and

any downgrades

in such

credit ratings

can hinder

new

forms

of

funding

and/or

cause

funding

to

be

more

expensive,

which

could

in

turn

affect

results

of

We depend on

cash dividends from FirstBank to meet our cash obligations.

As a holding company,

dividends from FirstBank, our banking subsidiary,

have provided a substantial portion of our cash flow used

to

service

the

on

our

TRuPs

and

other

obligations.

is

limited

by

law

in

its

ability

to

make

to us

its earnings

and

capital position.

A failure

by

to generate

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

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

31,

2022,

we continue

to

have

a

amount

of

loans.

If

we

are

unable

to

the

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

may be materially and adversely affected.

Our

ACL

may

not

be

to

cover

actual

losses,

and

we

may

be

to

our

ACL,

which

may

adversely affect our capital ratios, financial condition and results of

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

expenses on

leads to

reductions in

our income

from operations,

to

our ACL

on loans

at a

level that

our management

deems to

be appropriate

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

expense

on

the

future as

a

result

of

new

loans,

future

in

loans

beyond

what

was

forecasted,

actions

and

loan

modifications,

changes

in

current

and

and

other

or

for

other

reasons

beyond

our

In

the

bank

review

the

of

our

ACL

on

loans

and

may

require

an

in

the

credit

loss

expense

on

loans

or

the

of

classified loans and loan charge-offs, based on

judgments that differ from those of management.

The level

of the

ACL reflects

estimates based

upon various

assumptions and

judgments as

to specific

credit risks;

industry concentrations;

loan loss

experience; current

quality; present

economic, political

unidentified

losses inherent

in the

current

and supportable

forecasts. The

of

the

level

of

the

ACL

on

loans

a

high

degree

of

subjectivity

and

to

make

significant estimates and judgments

regarding current credit risks

and future trends, all

of which may undergo

material changes. If our

prove

to

be

incorrect,

our

ACL

on

loans

may

not

be

to

cover

losses

in

our

loan

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

The Corporation’s force-placed

insurance policies could be disputed by the customer.

maintains force-placed

insurance policies

been put

into place

when a

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

under such

force-placed

insurance policy,

and the

failure of

to resolve

such a

claim

to

the

satisfaction

may

result

in

a

dispute

between

the

and

the

which

if

not

resolved, could have an adverse effect on the Corporation.

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

In

with

the

sale

and

of

loans,

we

are

to

make

a

variety

of

customary

representations

and

warranties relating

to the

loans sold

or securitized.

Our obligations

to these

representations and

warranties are

for

the

life

of

the

loan,

and

relate

to,

among

other

things,

the

(i)

with

laws

and

regulations;

(ii)

standards;

(iii)

the

of

in

the

loan

documents

and

loan

files;

and

(iv)

the

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

for

the

loan,

and

may

not

be

saleable

or

may

be

saleable

only

at

a

discount.

If

such a

loan

is

sold

before

we

detect

non-compliance,

we

may

be

the

loan

and

bear

any

loss directly,

or

we

may

be

to

indemnify

the purchaser

against

any

loss,

either

of

which

could

reduce

our cash

for

and

that

it has

to

ensure

that

loans

are

originated

in

with

the

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

We

may fail to

identify and manage

risks related to a

variety of aspects

of our business, including,

but not limited

to, liquidity risk;

risk; market

risk; credit

risk; operational

risk; legal,

regulatory and

compliance risk;

reputational risk;

model risk;

capital

risk;

risk;

and

and cybersecurity

risk.

We

have

adopted

and

improve

various

systems to

monitor

and

manage risk.

Any improvements

to our

and

however,

may not

be adequate

and manage

the risks in

our various

businesses. If

our risk

framework is

ineffective,

either

because it fails to

keep pace with changes

in the financial markets

or our businesses or

for other reasons,

we could incur losses,

suffer

reputational damage, or find ourselves out of compliance with applicable

regulatory mandates or expectations.

We may also be

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

cyber-attacks, which could cause delays or

disruptions

to

functions,

and

market

In

our

vendors

and

could

suffer

from

such

events.

Should

these

events

affect

us,

or

the

vendors

or

counterparties with

conduct business,

our consolidated

operations could

be negatively

affected. When

we record

balance

sheet

for

probable

loss

related

to

losses,

we

may

be

unable

to

our

and

any

we

to

cover

losses

may

not

be

to

cover

our

actual

exposure, which

may have

impact on

our consolidated

operations or

for the

periods in

which

we recognize the losses.

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

success depends,

in large

part, on its

ability to attract

and retain

skilled, experienced personnel.

Competition for

candidates

in

the

and

markets

that

the

and

serves

is

intense,

and

while

the

invests significantly

in the training

and development of

its employees,

it may not

be able to

hire people or

to retain them.

high inflation

has impacted

both cost

structure and

employee demand

for wage

growth, which

may lead

to sustained

higher turnover

rates.

If

the

is

unable

to

retain

its

most

its

and

positioning

could

be

materially adversely affected.

Our businesses may be adversely affected by litigation.

We

have, in

the past,

been party

to claims

and legal

actions by

our customers,

or subject

to regulatory

supervisory actions

by the

government on

behalf of

customers, relating

to our

performance of

fiduciary or

contractual responsibilities.

In the

past, we

have also

been

subject

to

class

action

by

our

and

we

have

also

faced

employment

lawsuits

and

other

legal

claims. In

any future

claims or

actions, demands

for substantial

monetary damages

may be

asserted against

us, resulting

in financial

or

an

adverse

effect

on

our

reputation

among

or

on

demand

for

our

and

A

class

action

suit

against

us

in

the

future

could

result

in

costs,

and

the

diversion

of

attention

and

We

may

be

unable

to

our

to

risk

when

we

record

balance

sheet

reserves for probable loss contingencies.

As a result, reserves we establish to

cover any settlements or judgments may

not be sufficient

to

cover

our

actual

which

has

in

the

past

and

may

occur

in

the

future,

in

a

adverse

impact on our consolidated results of operations or financial condition.

In

the

course

of

our

we

are

also

subject

to

various

regulatory,

and

law

inquiries,

investigations and

subpoenas. These

may be

directed generally

to participants

in the

businesses in

are involved

or may

be

specifically directed

at us. In

regulatory enforcement

matters, claims for

disgorgement, the

imposition of penalties

and the imposition

of other remedial sanctions are possible.

The resolution

actions or

regulatory matters,

when unfavorable,

has had,

in the

future have,

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

are predicated upon

as a fiduciary

and a service

provider that adheres

to

the

highest

of

ethics,

service

quality

and

compliance.

Adverse

publicity,

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

funding for

businesses. Preserving

and enhancing

also depends

on maintaining

systems and procedures that

address known risks and regulatory

requirements, as well as our

ability to identify and mitigate

risks

that

arise

due

to

changes

in

our

businesses,

the

market

places

in

which

we

operate,

the

environment

and

If we

fail to

promptly address

matters that

bear on

our reputation,

may be

materially adversely

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,

on

a

straight-line

basis,

and

these

assets

are

for

when

events

or

changes

in

indicate

that

the

fair

value

may

not

exceed

their

amount.

Factors

that

may

be

a

change

in

indicating

that

the

value

of

the

or

amortizable

assets

may

not

be

recoverable

reduced future

cash flow estimates,

decreases in the

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

qualitative assessment

of events

and circumstances

affect

each relevant

reporting unit's

to determine

whether it

was more

not that the

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

of

various

factors

that

to

rapidly

evolve

and

for

which

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

from

this

assessment.

Such

could

result

in

future

of

that

would,

in

turn,

impact

our

results

of

and

the

unit

to

which

the

relates.

During

the

fourth

2023, management

performed a

qualitative analysis

of the

of each

relevant reporting

unit’s

goodwill and

that

it

is

more-likely-than-not

that

the

fair

value

of

the

units

exceeded

their

value.

Therefore,

no

quantitative analysis was required.

As of

book value

of our

goodwill was

$38.6 million,

which was

recorded at

If an

is

made

in

a

future

period,

our

and

book

value

of

will

be

reduced

by

the

amount

of

the

impairment. If an

impairment loss is

recorded, it will

have little or

no impact on

the tangible book

value of our

common stock, or

our

levels, but such

an impairment

loss could significantly

reduce FirstBank’s

earnings and

thereby restrict FirstBank’s

ability to make dividend payments to us without prior

regulatory approval, because Federal Reserve policy states that

the bank holding

company dividends should be paid from current earnings.

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

income by the Bank.

As

of

31,

2023,

the

had

a

tax

asset

of

$150.1

million

(net

of

a

of

$

$139.2

million, including

a valuation

allowance of

$111.4

million against

the deferred

tax assets

of FirstBank).

PR Tax

Code, the

and its

subsidiaries, including

FirstBank, are

treated as

separate taxable

entities and

are not

entitled to

file consolidated

tax returns.

to obtain

a tax

benefit from

a NOL,

a particular

subsidiary must

be able

to demonstrate

taxable

income

within

the

NOL

period.

to

the

PR Tax

Code,

the

period

for

NOLs

during

taxable

years

that

commenced

after

31,

and

ended

before

January

1,

is

years;

for

NOLs

during

taxable years

commencing

after December

31,

2012, the

carryover period

is 10

years.

taxes

that

assess

whether

a

should

be

against

their

tax

asset

based

on

an

of the

asset that

is more

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.

judgments regarding tax accounting

policies and the resolution of

tax disputes may impact the

earnings and cash

flow, and

changes in the tax

laws of multiple

jurisdictions can materially

affect our operations,

tax obligations,

and effective tax rate.

is

in

the

tax

rate

and

in

its

tax

positions.

The

for

tax

when

such

tax

do

not

meet

the

thresholds

or

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

rate. When particular

tax matters arise,

a number

of years may

elapse before such

matters

are audited

and finally

resolved. In

Rico Department

of Treasury

(“PRTD”),

Revenue Service

(“IRS”),

and

the

tax

in

the

jurisdictions

in

which

we

operate

may

our

tax

and

we

may

and

provide

for

potential liabilities

arise out

of tax

audits to

the extent

that uncertain

tax positions

fail to

standard under

applicable GAAP.

Unfavorable resolution

of any

tax matter

could increase

tax rate

a

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

the use of cash in the year of resolution.

First BanCorp. is subject

to Puerto Rico income

tax on its income

from all sources. FirstBank

is treated as a

foreign corporation for

U.S. and USVI income

tax purposes and is generally

subject to U.S. and

USVI income tax only

on its income from

sources within the

U.S.

and

USVI

or

income

connected

with

the

conduct

of

a

trade

or

in

those

regions.

The

USVI

jurisdiction

imposes

income

taxes

based

on

the

U.S.

Revenue

Code

under

the

“mirror

system”

by

the

Naval

Service

Appropriations Act of 1922. However,

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

if any.

These

tax

laws

are

complex

and

subject

to

interpretations.

We

must

make

and

interpretations

about

the

application

of

these

complex

tax

laws

when

our

for

income

taxes,

our

tax

assets

and

liabilities, and

our valuation

allowance. In

addition, legislative

changes, particularly

tax laws,

Changes in applicable

tax laws in

Puerto Rico, the

U.S., or other

jurisdictions or tax

authorities’ new interpretations

could result

in

increases in our overall taxes and the Corporation’s

financial condition or results of operations may be adversely impacted.

Our ability to use our NOL carryforwards may be limited.

has U.S.

sourced NOL

carryforwards. Section

382 of

Internal Revenue

Code (“Section

382”)

limits the

utilize U.S.

NOLs for income

tax purposes,

at such

jurisdictions following

an event

of an

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

Ac No.

60 of

2019 amended

the PR

Tax

Code

to repeal

the corporate

NOL

carryover limitations upon change in control for taxable years beginning

after December 31, 2018.

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

attributable to the period prior to the ownership change is

subject

to

and

only

a

portion

of

the

U.S.

and

USVI

NOLs,

as

applicable,

may

be

used

by

the

to

offset

the

annual

U.S.

and

USVI

taxable

income,

if

any.

In

2017,

the

a

formal

change

within

the

meaning of Section 382 covering a

comprehensive period, and concluded that

an ownership change, for U.S. and

USVI purposes only,

had

during

such

period.

The

Section

limitation

has

in

higher

U.S.

and

USVI

income

tax

than

we

would have incurred in the absence of such limitation.

It is possible that

the utilization of our

U.S. and USVI NOLs

could be further limited

due to future changes

in our stock ownership,

as

a

result

of

either

sales

of

our

shares

or

of

new

shares

that

could

separately

or

cumulatively

trigger

an

change

and,

consequently,

a

Section

limitation.

Any

further

Section

may

result

in

greater

U.S.

and

USVI tax

than

we would

incur

in the

absence

of such

a limitation

and

any

increased liabilities

could

adversely affect

our

earnings and cash

flow.

We

may be able to

mitigate the adverse

effects associated with

a Section 382

limitation in the U.S.

to the extent that we could credit any resulting

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

in Puerto Rico. However,

our

ability

to

reduce

our

Puerto

Rico

tax

through

such

a

credit

or

will

depend

on

our

tax

profile

at

each

annual

taxable period, which is dependent on various factors.

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

or

misuse

of

confidential

or

our

costs

to

and

update

our

and

security systems and infrastructure, and present significant reputational, legal

and regulatory costs.

Our

is

highly

on

the

and

efficacy

of

our

and

data

as

well

as

those

of

our

suppliers,

and

other

third

To

access

our

network,

and

our

customers, suppliers,

third parties,

including downstream

service providers,

services industry

and

data

aggregators,

with

whom

we

interact,

on

whom

we

rely

or

who

have

access

to

our

or

account

information, increasingly

use personal mobile

devices or computing

devices that are

outside of our

network and control

environments

and

are

subject

to

their

own

risks.

Our

relies

on

access

and

the

secure

transmission,

storage and

retrieval

of confidential,

personal and

other

in our

and data

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

systems and networks of third parties.

risks

for

have

in

recent

years,

given

the

sophistication and activities

of organized

computer criminals, hackers,

and terrorists and

our expansion of

online and digital

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

or

may

result

from

human

error

or

accidental

technological

failure.

These

threats

include

cyber-attacks,

such

as

computer viruses,

malicious or

destructive code,

phishing attacks,

denial of

service attacks, or

other security

breach tactics

that could

result

in

the

release,

gathering,

monitoring,

misuse,

loss,

destruction,

or

theft

of

confidential,

and

other

information, including

intellectual property,

of ours, our

employees, our customers,

or third parties,

damages to systems,

or otherwise

disruption

to

our

or

our

or

other

third

parties’

network

access

or

both

domestically

and

internationally.

While

we

an

Program

that

continuously

cyber-related

risks

and

ultimately

ensures

for

the

transmission,

and

storage

of confidential,

in our

systems

and networks, as

well as a vendor

management program to

oversee third party

and vendor risks, there

is no guarantee

that we will not

be exposed to

or be affected

by a cybersecurity

incident. For example,

as previously disclosed,

one of our

third-party vendors was

the

victim

of

a

in

April

a

set

of

data

that

some

on

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

and

impact

was minimal.

Our

vendor

has

(and

we

have

no

to

the

contrary)

that

to

date

there

is

no

that

there

has

been

any

actual

or

attempted

misuse

of

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

use to

access our

integrated products

and services,

which, in

turn, could

unauthorized disclosure,

release, gathering,

monitoring, misuse,

loss or

destruction of

confidential, proprietary,

information (including

account data

information) or

data security

compromises. As

cyber threats

evolve, we

may be

expend significant

to

modify

or

enhance

our

protective

measures,

investigate,

and

remediate

any

vulnerabilities

or

and

develop

our

capabilities

to

respond

and

recover.

The

full

extent

of

a

cyberattack,

and

the

steps

that

the

Corporation may

need to take

to investigate

such attack, may

not be immediately

clear, and

it could take

considerable additional

time

for

us

to

the complete

scope

of information

compromised,

at which

time

on the

and

to

recover and restore to

a business-as-usual state may

be difficult to assess.

These factors may also

inhibit our ability to provide

full and

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

vendors, regulators, and the public.

A successful penetration or circumvention of our system security,

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

could cause us serious negative consequences, including significant

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

Any of these

adverse consequences could

adversely impact our

and financial condition.

our

may

not

be

to

compensate

us

for

the

costs

and

other

losses

arising

from

cyber-attacks,

failures of

systems, or

security breaches,

and such

insurance policies

may not

be available

to us in

on

economically

terms, or

at

all.

Insurers

may

also

deny

us

as to

any

future

claim.

Any of

these

results

could

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

Our

or

systems

or

or

those

of

third

could

fail

or

be

breached.

Any

such

future

incidents could

potentially disrupt

our business

and adversely

operations, liquidity,

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

is

not

limited

to

our

own

Our

and

systems

and

including our computer systems,

data management, and internal

processes, as well as those

of third parties that

perform key aspects of

our

such

as

data

recording

and

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

who may,

because of

human error,

misconduct,

malfeasance,

failure, or

breach of

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

Our ability to

implement backup systems

and other safeguards

with respect to

third-party systems is more

limited than with

respect

to

our

own

systems.

In

our

financial,

accounting,

data

backup,

or

other

or

systems

and

infrastructure may fail to

operate properly or become disabled,

damaged, or otherwise compromised

as a result of a number

of factors,

events that

are wholly

or partially

beyond our

We

may

need to

take our

systems offline

if they

become infected

with malware or a computer

virus or because of another form of

cyberattack. If backup systems are utilized,

they may not process data

as quickly as our primary

systems and some data might

not have been saved to backup

systems, potentially resulting in a

temporary or

permanent loss of such data.

We

frequently update

our systems

to support

our operations

and growth

and to

remain compliant

with applicable

laws, rules,

and

regulations. In

addition, we

review and

strengthen our

security systems

in response

to any

cyber incident.

Such strengthening

entails

costs

and

risks

with

new

systems

and

integrating

them

with

ones,

business interruptions and

the risk that this

strengthening may not

be entirely effective.

Implementation and testing

of controls related

to

our

monitoring,

and

and

personnel

to

operate

our

systems

also

entail

significant costs.

Such operational

risk exposures

operations, liquidity,

condition, as

well as

cause

harm.

In

we

may

not

have

to

compensate

for

losses

from

a

major

interruption.

We

must respond

to rapid

technological changes,

and these

changes may

be more

difficult or

expensive than

anticipated.

We

may also be negatively

affected if we fail

to identify and address

operational risks associated

with the introduction of

or changes to

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

displace traditional financial services.

Like

most

depends

on

to

deliver

its

and

other

and

to

otherwise conduct

business. To

remain technologically

competitive and

operationally efficient,

FirstBank invests

in system

upgrades,

new

technological

solutions,

and

other

initiatives.

If

competitors

introduce

new

and

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

on our

business, financial

operations. The

financial services

industry is

changing rapidly

and, in

remain competitive,

we must

to

enhance

and

improve

the

functionality

and

of

our

and

technologies.

These

changes

may

be

more difficult or expensive to implement than we anticipate.

When

we

launch

a

new

product

or

service,

introduce

a

new

platform

for

the

or

of

or

(including mobile

connectivity and

cloud computing),

or make changes

to an existing

product or service,

we may not

fully appreciate

or

identify

new operational

risks that

may

arise

from those

changes,

or

we may

fail

to

to mitigate

the

risks

with

those

changes.

failure

in

this regard

could

diminish

to

operate

our

business or

result

in

to

our

and

third

weaker

standing,

and

reputational, legal and regulatory costs.

some

recent

innovations

may

trend

toward

replacing

banks

as

service

rather

than

merely

augmenting

those

For

which

claim

to

offer

applications

and

based

on

artificial

intelligence

are

to compete

much

more

with

in

areas

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,

persons interested

in “self-service” investment

management. Similarly,

inventions based on

blockchain technology

eventually may be

the foundation for

greatly enhancing

transactional security throughout

the banking industry,

but also eventually

may reduce the

need for banks

as secure

deposit-keepers

and

intermediaries.

Any

of

the

foregoing

could

and

affect

our

and

The Corporation is subject

to stringent and changing

privacy laws, regulations,

and standards as well

as policies, contracts, and

other

related

to

data

privacy

and

security.

Our

failure

to

comply

with

privacy

as

well as

other

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

State,

federal,

and

foreign

governments

are

increasingly

enacting

laws

and

governing

the

use,

retention,

sharing, transfer,

and security

of personally

identifiable information

and data.

A variety

of federal,

state, local,

and foreign

orders,

rules,

codes,

guidance,

and

certain

privacy,

data

protection,

protection,

and

the

of

and

other

data

apply

to

our

State

laws

are

changing

rapidly,

and

new

proposed

or

enacted

in

a

number

of

other

states

imposes,

or

has

the

to

impose,

additional obligations

on companies

that process

confidential, sensitive

and personal

information, and

will continue

to shape

the data

privacy

environment

nationally.

The

U.S.

federal

is

also

focused

on

privacy

Any

failure

by

us

or

any

of

our

partners

to

comply

with

laws,

rules,

and

may

result

in

investigations

or

actions

against

us

by

governmental entities, private

claims and litigation, fines,

penalties or other liabilities.

Such events may increase

our expenses, expose

us to

liabilities, and

impair our reputation,

which could have

on our business.

While we

aim to comply

with

applicable data protection

laws and obligations

in all material

respects, there

is no assurance

that we will

not be subject

to claims that

we

have

violated

such

laws

and

will

be

able

to

defend

against

such

claims,

or

will

not

be

subject

to

significant fines

and penalties

in the

non-compliance. Additionally,

to the

extent multiple

state-level laws

are introduced

in

the U.S. with

inconsistent or conflicting

standards and there

is no federal

law to preempt

such laws, compliance

with such laws

could

be difficult and costly,

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

of non-compliance.

RISK RELATING

TO THE REGULATION

OF OUR INDUSTRY

We are subject to certain regulatory

restrictions that may adversely affect our operations.

We

and regulation

by the

Board and

We

are a

bank holding

company and

a

company under

Holding Company

Act of

1956, as

amended. The

Bank is

also subject

and

regulation by OCIF.

Under

federal

law,

holding

are

to

engage

in

a

broader

range

of

“financial”

than

those

to

bank

holding

that

are

not

holding

companies.

A

holding

company

that

ceases

to

meet

certain

is

subject

to

a

variety

of

restrictions,

on

the

the

prohibition

from

undertaking

new activities

or acquiring

shares or

control of

other companies.

If we

fail to

comply with

the requirements

from our

we

may

become

subject

to

action

and

other

adverse

actions

that

might

have

a

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

In the event of a bank

failure, the FDIC takes control

of a failed

bank and, if

pays all insured

deposits up to

the statutory deposit

insurance limits using

the resources of

by law to

maintain adequate

funding of

the DIF,

and the

FDIC may

increase premium

assessments to

such

The

Dodd-Frank

Wall

Street

Reform

and

Protection

Act

(the

“Dodd-Frank

Act”)

the

FDIC

to

increase the DIF’s

reserves against future losses, which will

require institutions with assets greater

than $10 billion, such as FirstBank,

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

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

are

subject

to

by

the

Federal

Reserve

Board

and

the

FDIC.

Any

deficiencies

in

our

may

be

into

our

ratings,

which

can

affect

our

ability

to

make

acquisitions

or

perform other actions.

Our compensation

practices are

by the

Federal

Reserve

Board

and

As discussed

in Part

I, Item

1,

“Business” of this

Form 10-K,

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

Our

failure

to

satisfy

these

and

could

expose

us

to

adverse

criticism,

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

We

are

subject

to

capital

guidelines,

and,

if

we

fail

to

meet

these

guidelines,

our

and

condition will be adversely affected.

We

to stringent

capital requirements.

and FirstBank

met general

capital ratios

as of

2023, and

both companies

will continue

to exceed

the minimum

risk-based and

leverage

capital

ratio

for

status

under

the

current

capital

rules,

we

cannot

assure

that

we

will

remain

at

such

levels.

If

we

fail

to

meet

these

minimum

capital

and

other

our

and

will be materially and adversely affected.

If we fail to maintain certain capital

levels or are deemed not well managed under

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

and

of

the

Federal

Reserve

Board

could

affect

our

and

to being

by general

economic conditions,

our earnings

and growth

are affected

by the

policies of

Reserve Board. An important

function of the Federal

Reserve Board is to regulate

the money supply and

credit conditions. Among the

used

by

the

Federal

Reserve

Board

to

these

objectives

are

open

market

in

U.S.

of

the

rate

and

changes

in

reserve

for

bank

These

are

used

in

varying combinations to

influence overall economic

growth and the

distribution of credit,

bank loans, investments

and deposits. Their

use also affects interest rates charged on loans or paid

on deposits.

The monetary policies

and regulations of

the Federal Reserve

Board, which include

d, but were

not limited to,

multiple increases in

the federal

funds rate

to reduce inflation,

have had

a significant effect

on the

operating results

banks and

to continue

to do

so in

the future.

The effects

of such

policies upon

our business,

and results

have

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

We

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

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

are

for

enforcing

these

A successful

to

an

institution's performance

under the Community Reinvestment

Act, the Equal Credit

Opportunity Act, the Fair

Housing Act or any

of the other fair lending

laws

and regulations

could result in

a wide variety

of sanctions, including

damages and civil

money penalties, injunctive

relief, restrictions

on mergers and acquisitions

activity, restrictions

on expansion and restrictions on entering

new business lines. Private parties may

also

have the

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

We

face

a

risk

of

noncompliance

and

action

related

to

the

Bank

Secrecy

Act

and

other

statutes and regulations.

The

Bank

Secrecy

Act,

the

USA

PATRIOT

Act,

and

other

laws

and

require

to

institute

and

an

program

and

file

suspicious

and

currency

reports

as

among

other

duties.

The

Crimes

Enforcement

Network

is

authorized

to

impose

civil

money

penalties

for

violations

of

those

and

has

recently

engaged

in

coordinated

efforts

with

the

federal

banking

regulators, as well

as the U.S. Department

of Justice’s

Drug Enforcement Administration.

We

are also subject

to increased scrutiny

of

our compliance with

trade and economic sanctions

requirements and rules enforced

by OFAC.

If our policies, procedures

and systems

are deemed

deficient, we

including fines

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.