FIRST BANCORP PR

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

CONDITION

AND

RESULTS

OF

OPERATIONS (“MD&A”)

The following MD&A

relates to the

accompanying audited consolidated

financial statements of

First BanCorp. (the

“Corporation,”

“we,” “us,”

“our,”

or “First

BanCorp.”) and

should be

read in

with such

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

generally accepted

accounting principles

in the

of

America

(“GAAP”).

See

Measures

and

Reconciliations”

below

for

about

why

financial measures are

presented, reconciliations

of non-GAAP financial

measures to the

most comparable GAAP

financial measures,

and references to non-GAAP financial measures reconciliations presented

in other sections.

The detailed financial discussion

that follows focuses on

2024 results compared to

2023. For a discussion of

2023 results compared

to 2022, see Part I, Item 7,

“Management’s Discussion

and Analysis of Financial Condition

and Results of Operations” included

in the

Corporation’s Annual Report

on Form 10-K for the year ended December 31, 2023, filed on February

28, 2024.

In

this

and

of

our

and

results

of

we

have

that

may

constitute

“forward-looking

statements”

within

the

meaning

of

the

safe

harbor

of

Section

27A

of

the

Act

and

Section 21E

of the

Exchange Act.

Forward-looking statements

are not

historical facts

or statements

of current

conditions, but

instead

represent only our beliefs

regarding future events, many

of which, by their nature,

are inherently uncertain and

outside our control. By

these statements

for you

in this

manner,

we are

alerting you

to the

possibility that

our actual

results, financial

liquidity and capital actions may differ materially

from the anticipated results, financial condition, liquidity

and capital actions in these

statements. Important

factors

cause our

results, financial

condition, liquidity

actions to

differ

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

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

EXECUTIVE SUMMARY

is a diversified

company headquartered

in San Juan,

Puerto Rico offering

a full range

products to

consumers and

commercial customers

through various

subsidiaries. First

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

Agency.

Through

its wholly

-owned

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Significant Events

Economy and Market Update

For

the

year

ended

31,

2024,

the

was

able

to

achieve

growth

on

its

loan

of

$569.0 million

or 4.7%

and expand

its core

deposit base

by $267.1

million or

2.1%,

while safeguarding

asset quality

and improving its

earnings profile. The

U.S. and Puerto

Rico economy remain

on solid footing

driven by positive

labor market trends

and increased business activity.

Unemployment in the Puerto Rico market has continued to decrease

during 2024 to 5.4% in December

2024, while in the U.S. the

unemployment rate was 4.1% for the

same period and real gross domestic product

(“GDP”) increased at an

annual rate of 2.3%.

The

Federal

Reserve

(the

“FED”)

has

to

make

on

stabilizing

with

Price

Index

(“CPI”)

reaching 2.9%

year-over-year,

above the

2% target

but has

allowed the

FED to

continue its

path toward

the economy’s

soft

landing.

With

a

strong

labor

market,

stable

growth

and

stabilizing,

the

market

expects

the

FED

to

lowering interest rates but at a slower pace during 2025.

As

we

look

ahead

into

2025,

assuming

no

meaningful

changes

in

deposit

balances,

the

sees

opportunities

for

net

income

and

margin

expansion

as

cash

flows

from

the

will

be

redeployed

into

loans,

higher

yielding

or

used

to

pay

down

higher-cost

borrowings.

Credit

quality

to

remain

stable

in

the

and

loan

while

the

loan

have

shown

in

levels

which

are

to

stabilize

during

the

second

half

of

The

expects

its

reserve

and

capital

levels

will

allow

it

to

executing its capital plans and continue its strategic technology and branch

expansion projects.

Capital Deployment Actions and Dividend Payment Increase

In 2024, the Corporation delivered approximately $306.0

million, or over 100% of 2024 earnings, in the form of capital deployment

actions

through

$100.0

million

in

of

common

stock,

$100.0

million

in

the

of

trust-preferred

securities (“TruPS”)

Trust II,

and approximately

$106.0 million

in common

declared. In

the

aggregate, as of

February 21, 2025,

the Corporation has

remaining authorization

of approximately $200.0

million, which it

expects to

execute during 2025.

21, 2025,

Directors declared

cash dividend

of $0.18

share, which

an

of

$0.02

per

common

share,

or

a

13%

to

its

most

recent

paid

in

December 2024.

The dividend

is payable

7, 2025

to shareholders

at the

close of

business on

February 21,

The increased quarterly dividend level equates to an annualized dividend

of $0.72 per common share.

Legislative and Regulatory

A

of

and

matters

us

can

be

found

in

Part

I,

Item

1,

–

Supervision and Regulation” of this Form 10-K.

Overview of Results of Operations

The

results

depend

on

its

net

income,

which

is

the

between

the

income

earned

on

its

assets,

and

loans,

and

the

expense

on

its

and

borrowings.

Net

income

is

by

various

the

(i)

the

rate

environment;

(ii)

the

volumes,

mix,

and

of

assets,

and

liabilities; and

(iii) the

characteristics of

these assets

and liabilities.

’s

operations also

depend on

the

for

credit

losses,

(such

as

personnel,

occupancy,

service

fees,

the

FDIC

premium,

and

other

costs),

income

(mainly

service

charges

and

fees

on

cards

and

income,

and

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

taxes.

The

had

a

net

income

of

$298.7

million

($1.81

per

diluted

common

share),

for

the

year

ended

31,

2024,

to

$302.9

million

($1.71

per

diluted

common

share),

for

the

year

ended

31,

Other

selected

financial indicators for the periods presented are included below:

Year

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.58

%

1.62

%

1.57

%

Return on Average

Common Equity

(3)

19.09

21.86

18.66

Efficiency Ratio

(4)

51.92

50.70

48.25

(1)

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

financial performance and whether it is using its assets

efficiently.

(2)

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

and is calculated by dividing net income by its average total assets.

(3)

Measures the Corporation’s performance

based on its average common stockholders’ equity and is calculated

by dividing net income by its average total common stockholders’

equity.

(4)

Measures how much the Corporation incurred to generate a

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

by total revenue.

The key

drivers of

GAAP financial

results for

ended

December 31, 2023, include the following:

●

increased to

$807.5 million,

$797.1 million

for the

by loan

growth, partially

in interest expense

due to

higher rates

on interest-bearing

deposits given

the higher

environment and

the change

in deposit

mix reflecting

a continued

migration

from

and

other

low-cost

to

higher-cost

See

“Result

of

–

Net

Interest Income”

below for additional information.

●

loans, finance

leases, unfunded

loan commitments

and debt

securities for

ended

2024 was $59.9

to $60.9 million

results reflect

a decrease

in provision

for the

loan portfolios,

which was

almost entirely

offset

by an

increase in provision

for the consumer

loan and finance

lease portfolios

due to higher

charge-off and

delinquency levels and

portfolio growth.

totaled $80.8

or 0.65%

of average

loans, compared

to $67.4

0.58% of

average loans,

for the

by a

$22.6 million

loans

and

finance

leases

net

charge-offs,

which

is

net

of

a

$10.0

million

with

the

bulk

sale

of

fully-

charged

off loans,

by a

$5.0 million

recovery recorded

on a

and industrial

(“C&I”)

loan

in

the

Puerto

Rico

region

and

a

$6.0

million

net

during

on

a

C&I

loan

in

the

Florida

region

in

the

power

See

“Results

of

–

for

Credit

Losses”

and

“Risk

Management” below for the analysis of the allowance for credit losses (“ACL”) and

non-performing assets and related ratios.

●

31, 2024 decreased

to $130.7

to $132.7 million

for the

year

ended

31,

2023,

mainly

due

to

the

effect

during

of

a

$3.0

million

gain

with

the

sale

of

a

banking premise in the Florida

region and a $3.6 million gain

recognized from a legal settlement

,

partially offset by increases

of $2.8

million

in card

and processing

$2.1 million

in revenues

during 2024.

See “Result of Operations – Non-Interest Income”

below for additional information.

●

Non-interest expenses for

the year ended December 31,

2024 increased to $487.1 million,

compared to $471.4 million

for the

31, 2023, mainly due

to a $12.8 million

increase in employees’

compensation and benefits

expenses in

part due

to annual salary

merit increases. The

results for the

2024 and 2023

include a $1.1

million

and $6.3 million FDIC special

assessment expense,

See “Results of Operations

– Non-Interest Expenses” below

●

Income tax

expense decreased

to $92.5

$94.6 million

for 2023,

driven by lower pre-tax

income. See “Income Taxes”

below and Note 20

– “Income Taxes

”

included in Part II,

Form 10-K for additional information.

●

As of

2024, total

assets were

approximately $19.3

billion, an

$383.4 million

31,

2023, primarily related to an increase in total loans and cash and

cash equivalents, partially offset by reductions of

securities. See “Financial Condition and Operating Data Analysis” below for

additional information.

●

As of

2024, total

liabilities were

$17.6 billion,

of $211.8

million from

2023, which

an

in

non-brokered

offset

by

a

in

CDs

and

the

of

TruPS

issued

by

FBP

Trust

II.

See

“Risk

–

Risk”

below

for

information about the Corporation’s

funding sources and strategy.

●

The Bank’s

primary sources of funding

are consumer and commercial

core deposits, which exclude

government deposits and

CDs.

As

of

31,

2024,

these

core

to

$12.9

funded

66.70%

of

total

assets.

Excluding

fully

deposits amounted

to $4.8

billion

as of

31,

Cash

and

cash

to

$1.2

billion

as

of

31,

Also,

the

had

$1.2

billion

in

free

high-quality

liquid

In

the

Bank maintains

at

the

Federal

Home

Loan

Bank

(“FHLB”)

and

the

FED’s

Window.

As

of

31,

2024,

the

had

$2.6

billion

for

funding

under

the

FED’s

Window

and

$912.4

million

for

capacity on

FHLB lines

based

on collateral

pledged

at these

entities. In

the aggregate,

as of

December 31, 2024, the Corporation had

$5.9 billion, or 124% of estimated uninsured deposits (excluding

fully collateralized

deposits),

to

meet

needs.

See

“Risk

–

Risk”

below

for

information about the Corporation’s

funding sources and strategy.

●

As of

total stockholders’

equity was

$1.7 billion,

of $171.6

million from

increase was driven

by net income

generated in

a $73.2

in the fair

value

of available-for-sale

recorded as

part of accumulated

loss in the

of

offset

by

common

stock

in

$106.0

million

or

$0.64

per

common

share,

and

$100.0

million

in

common

stock

repurchases.

The

CET1

tier

total

capital, and leverage

ratios were 16.32%,

16.32%, 18.02%, and

11.07%, respectively,

as of December 31,

2024, compared to

CET1

tier

total capital,

and

leverage

ratios of

16.10%,

16.10%,

18.57%,

and

10.78%,

as of

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

●

Total

loan

production,

refinancings,

renewals,

and

draws

from

revolving

and

non-revolving

commitments,

$291.1 million

to $5.4

billion for

See “Financial

Condition

and Operating Data Analysis” below for additional information.

●

Total

assets were

$118.3

a decrease

of $7.6

million, from

2023,

driven

by

a

$15.3

million

in

the

other

real

estate

owned

(“OREO”)

balance

mainly

in

the

Puerto

mostly attributable

to the

sale of

a $5.3

million commercial

OREO property

and sales

OREO properties.

This variance is

net of a

$3.7 million

increase in other

repossessed property

and a $3.7

nonaccrual loans

investment mainly

due to

the inflow

of a

$16.5 million

commercial relationship

in the

food retail

in

the

Puerto

Rico

region,

offset

by

the

sale

of

an

$8.2

million

C&I

loan

in

the

Puerto

Rico

region,

that

in

a

$1.2

million

that

had

been

loans

returned

to

accrual

status,

and

repayments. See “Risk Management – Nonaccrual Loans and Non-Performing

Assets” below for additional information.

●

Adversely

and

loans

by

$19.8

million

to

$87.3

million

as

of

31,

2024,

when

to

31,

2023,

driven

by the

downgrades

of two

the

Florida

region

to

$24.4

million

and

the

inflow

to

status

of

a

$16.5

million

relationship in

by the

upgrade of

a $12.2

million C&I

loan in

and the aforementioned sale and charge-off

of an $8.2 million nonaccrual C&I loan in the Puerto Rico region.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

has included

in this

Annual Report

on Form

10-K the

following financial

measures that

are not

recognized under

GAAP,

which are referred to as non-GAAP financial measures:

Net Interest Income,

Interest Rate Spread,

and Net Interest Margin, Excluding

,

and on a Tax

-Equivalent Basis

income, interest

rate spread,

and net

interest margin

are reported

instruments and

on a

tax-equivalent basis

to investors

income

that management

uses and

should facilitate comparability

and analysis

of the

periods presented.

The changes

in the

instruments have

no effect

on interest

due or

interest earned

on interest-bearing

liabilities or

assets, respectively.

The tax-equivalent

adjustment to

income recognizes

the income

tax savings

when comparing

taxable

and

assets

and

assumes

a

marginal

income

tax

rate.

Income

from

earning

assets

is

by

an

amount

equivalent to

the taxes

that would

have been

paid if

this income

had been

taxable at

statutory rates.

Management believes

that it

is a

standard

practice

in

to

present

net

income,

rate

spread,

and

net

margin

on

a

fully

tax-

equivalent basis. This adjustment

puts all earning assets, most

notably tax-exempt securities and

tax-exempt loans, on a common

basis

that facilitates comparison of results to the results of peers.

See “Results of Operations – Net Interest Income” below,

for the table that reconciles net interest income in accordance with GAAP

to

the

measure

of

net

income,

valuations,

and

on

a

basis

for

the

periods. The table also reconciles

net interest spread and

net interest margin on

a GAAP basis to these items

excluding valuations, and

on a tax-equivalent basis.

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

common equity is total

less goodwill

intangible assets.

Similarly,

tangible assets

are total

assets less

goodwill and

other intangible

assets. Tangible

ratio is

equity divided

by tangible

assets. Tangible

book value

share is tangible

assets

divided

by

the

number

of

common

shares

outstanding.

uses

and

that

many

stock

analysts

use

the

common

equity

ratio

and

book

value

per

common

share

in

with

other

more

bank

capital

ratios

to

compare

the

capital

of

banking

with

amounts

of

or

other

assets,

stemming from the use

of the purchase method

of accounting for mergers

and acquisitions. Accordingly,

the Corporation believes that

disclosures of

these financial measures

may be useful

to investors.

Neither tangible

nor tangible

assets, or

the related

measures, should

be considered in

isolation or

as a substitute

for stockholders’

equity,

total assets, or

any other

measure calculated

in

GAAP.

calculates its

equity,

tangible assets,

and

any other related measures may differ from that of other companies

reporting measures with similar names.

See “Risk

Management –

Capital” below

for the

table that

reconciles the

total equity

and total

assets in

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income,

Adjusted Non-Interest Income, and Adjusted Non-Interest

Expenses

To

supplement the

presented in

GAAP,

uses, and believes

that

benefit

from

of,

that

reflect

to

net

income,

income

and

non-interest expenses

to exclude

items that

management believes

are not

reflective of

core operating

performance (“Special

Items”).

The financial results

2022 did not

include any significant

Special Items. The

financial results for

the

years ended December 31, 2024 and 2023 included the following Special

Items:

Years

Ended December 31, 2024 and 2023

FDIC Special Assessment Expense

Charges

of $1.1

million ($0.7

million

after-tax,

calculated based

on the

statutory tax

rate of

37.5%) and

$6.3 million

($3.9

million after

tax calculated

the statutory

of 37.5%)

were recorded

for the

as a

result of

the special

imposed by

in connection

with losses

to the

Deposit

Insurance Fund associated with protecting

uninsured deposits following the failures of

certain financial institutions during the

first

half

of

The

FDIC

special

of

$7.4

million

was

the

revised

loss

in

the

FDIC

invoice

for

the

first

period

with

a

payment

date

of

June

28,

The

FDIC

deposit

special

is

in

the

of

income

for

the

year

ended

31,

as

part

of

“FDIC

deposit insurance” expenses.

Gain Recognized from Legal Settlement

A

$3.6

million

($2.3

million

after-tax,

based

on

the

tax

rate

of

37.5%)

gain

from

a

legal

settlement reflected

in the

for

as part

of “other

non-

interest income.”

Gain on Early Extinguishment of Debt

A

$1.6

million

gain

on

the

of

$21.4

million

in

junior

in

the

of

income

for

the

year

ended

31,

as

“Gain

on

early

of

debt.”

The

junior

debentures are

as “Long-term

borrowings.” The

purchase price

equated to 92.5%

of the $21.4

million par

TruPS. The

7.5% discount

resulted in the

gain of $1.6

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

on the income tax expense recorded during 2023.

Adjusted Net Income – The

following table reconciles for

the years ended December 31,

2024 and 2023, net income

to adjusted net

income, a non-GAAP

financial measure that

excludes the Special

Items identified above,

and shows for

2022, the reported net income.

Net income, as reported (GAAP)

$

298,724

$

302,864

$

305,072

Adjustments:

FDIC special assessment expense

1,099

6,311

Gain recognized from a legal settlement

(3,600)

(1,605)

Income tax impact of adjustments

(1)

(412)

(1,017)

Adjusted net income (Non-GAAP)

$

299,411

$

302,953

$

305,072

(1)

See "Adjusted Net Income,

Adjusted Non-Interest Income and

Adjusted Non-Interest Expenses"

above for the individual tax

impact related to the above

adjustments, which were based

on

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

Adjusted

income –

income

for the

year

ended

for

$3.6 million

gain recognized

from a

legal settlement

part of

“other non-interest

income” and

$1.6 million

gain on

of the

debentures reflected

in the

statements of income as “Gain on early extinguishment of debt.”

Adjusted

–

for

the

years

ended

31,

and

were

for

the

$1.1

million

and

$6.3

million

charges,

related

to

the

FDIC

special

in

the

consolidated statements of income as part of “FDIC deposit insurance”

expenses.

CRITICAL ACCOUNTING ESTIMATES

The

of

the

and

the

methods

of

these

conform

to

GAAP.

In

preparing

the

is

to

make

estimates,

and

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

during

the

require

and

about

matters

that

could

have

a

effect

on

the

The

that

are

susceptible

to

changes

include

the

(i)

the

ACL;

(ii)

of

instruments;

and

(iii)

income taxes. Actual results could differ from estimates and assumptions

if different outcomes or conditions prevail.

Allowance for Credit Losses

maintains an ACL

leases based upon

estimate of the

lifetime expected

credit

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

excluding loans held for sale. Additionally,

the Corporation maintains an ACL

for

and

debt

and

other

sheet

credit

(

e.g.

, unfunded

loan

commitments). For loans and finance leases, unfunded

loan commitments, and held-to-maturity debt securities, the estimate of

includes the

use of

quantitative models

that incorporate

forward-looking macroeconomic

scenarios that

are applied

over

the

lives

of

the

adjusted,

as

for

and

extension

options

using

experience.

For

of

the

ACL

for

lending

commitments,

such

is

using

the

same

as

the

ACL

for

loans,

while

also

taking

into

the

of

drawdowns

or

and

whether

such

are

cancellable by us. The

ACL for available-for-sale debt

securities is measured using

a risk-adjusted discounted cash

flow approach that

also

current

and

and

the

ACL

is

limited

to

the

between

the

fair

value of the security

and its amortized cost.

Judgment is specifically applied

in the determination of

economic assumptions, the length

of

the

initial

loss

period,

the

of

losses

beyond

the

initial

period,

loss

expectations,

usage

of

scenarios,

and

which

may

not

be

captured

in

the

loss

model,

as

further

below.

The macroeconomic

scenarios utilized by

the Corporation include

variables that have

historically been key

drivers of increases and

decreases

in

credit

losses.

These

but

are

not

limited

to,

rates,

housing

and

real

estate

prices, gross

domestic product levels,

retail sales, interest

rate forecasts,

corporate bond spreads,

and changes in

equity market prices.

The

derives

the

it

uses

in

its

ACL

model

from

Moody's

Analytics.

The

latter

has

a

large

team

of

economists, database managers and operational engineers with a history

of producing monthly economic forecasts for over 25 years.

The

has

set

an

initial

period

(“reasonable

and

period”)

of

two

years

and

a

period of up to three

years, utilizing a straight-line

approach and reverting back

to the historical macroeconomic

mean for Puerto Rico

and the Virgin

Islands regions. For the

Florida region, the methodology

considers a reasonable and

supportable forecast period

and an

implicit reversion towards the historical

trend that varies for each macroeconomic

variable. After the reversion period,

a historical loss

period

the

life,

for

prepayments,

is

used

based

on

the

change

in

key

economic variables

during representative

historical expansionary

and recessionary periods.

Changes in

economic forecasts impact

the

of

default

(“PD”),

loss-given

default

(“LGD”),

and

at

default

(“EAD”)

for

each

instrument,

and

therefore

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

Corporation does not expect to collect.

the

the

need

for

to

the

ACL.

may

be

related to and include,

but not be limited to,

factors such as the

(i) management’s

assessment of economic

forecasts used in

the

model

and

how

those

align

with

overall

of

current

and

(ii)

organization specific

risks such

as credit

concentrations, collateral

specific risks,

nature,

and size

of the portfolio

factors

that may

ultimately impact

credit quality,

and (iii)

other limitations

factors such

as changes

in underwriting

among

others.

The

factors

applied

at

31,

2024,

and

the

importance

and

levels

of

the

factors

applied,

may

change

in

future

periods

on

the

level

of

changes

to

items

such

as

the

uncertainty

of

and

management's

of

the

level

of

credit

risk

within

as

a

result

of

such

changes,

to the

ACL calculated

by the

model.

The evaluation

of qualitative

factors

is inherently

imprecise

and

significant management judgment.

The ACL can also be

impacted by factors outside the Corporation’s

control, which include unanticipated

changes in asset quality of

the

such

as deterioration

in

delinquencies,

or

credit

scores

in

our

real

estate and

portfolio.

fair

is utilized

to assess

the

when

a financial

asset is

to be

collateral dependent.

Our process for determining

the ACL is further

discussed in Note 1

– “Nature of Business

and Summary of

Significant Accounting

Policies” and

Note 5

– “Allowance

for

Credit Losses

and

Finance

Leases”

in

of this

Form

10-K.

Also, see

for

Credit

Losses

for

Loans

and

Finance

Leases”

below

for

on

the

of

the ACL,

key economic

and the

ACL sensitivity

analysis performed

as of

31,

The Corporation is required to estimate income taxes in preparing

its consolidated financial statements. This involves the estimation

of

current

income

tax

expense

with

an

of

between

the

amounts

of

assets

and

for

and

the

amounts

used

for

income

tax

The

of

current

income

tax

expense

and

that

require

the

to

assume

certain

based

on

its

interpretation

of

current tax regulations. Management assesses the relative benefits

and risks of the appropriate tax treatment of transactions, taking

into

account statutory,

judicial and regulatory

guidance, and recognizes

tax benefits

only when deemed

probable. Changes

in assumptions

affecting estimates

may be required

in the future

and estimated tax

liabilities may need

to be increased

or decreased accordingly.

The

adjusts the

accrual of

tax contingencies

in light

of changing

facts and

circumstances, such

as the

progress of

tax audits,

case law

and emerging

legislation. The

effective tax

rate includes

of tax

contingencies and

such

as

by

When

tax

matters

arise,

a

number

of

years

may

elapse

before

such

matters are

audited by

the taxing

authorities and

finally resolved.

Favorable resolution

of such matters

or the

expiration of

the statute

of limitations may result in the release of tax contingencies that

the Corporation recognizes as a reduction to its effective

tax rate in the

year of resolution.

Unfavorable settlement

of any particular

issue could increase

tax rate and

may require the

use of cash

in the year of resolution.

2024, we had $136.4

million of deferred tax assets,

net of a related valuation

allowance of $119.1

million. The

of

tax

expense

or

benefit

is

based

on

changes

in

the

amounts

of

assets

and

that

generate

temporary differences

and recognizes

enacted changes

in tax

rates and

laws in

the period

they occur.

The carrying

the Corporation’s net deferred

tax asset assumes that the Corporation will be able to generate sufficient

future taxable income based on

estimates and

assumptions. Valuation

allowances are

established, when

assets to

that is

more likely than not to be realized.

The determination of whether a valuation

allowance for deferred tax assets is appropriate

to

considerable

and

the

of

and

that

can

be

objectively

verified.

Positive

to

overcome

the

whether

future

taxable

income

in

amounts

and

character

within the carryforward periods is

available under the tax law.

Consideration must be given to

all sources of taxable income including,

as

applicable,

the

future

of

differences,

future

taxable

income

exclusive

of

the

of

temporary differences and

carryforwards, and tax planning

strategies. When negative evidence (e.g.,

cumulative losses in recent years,

history

of operating

loss or

tax credit

carryforwards

expiring

unused)

exists, more

than negative

evidence will

be

necessary.

has concluded

that based on

the level

of positive

evidence, it

is more

not that

the deferred

tax

asset will be realized, net of the existing valuation

allowances at December 31, 2024 and 2023. However,

there is no guarantee that the

tax benefits associated

with the deferred

tax assets will be

fully realized. The

positive evidence considered

by management in

arriving

at its

conclusion included

factors such

as the

three-year cumulative

income position;

and sustained

periods of

profitability;

proven

ability

to

future

income

and

execute

tax

The

considered by management

included the following: uncertainties

about the state of

the Puerto Rico economy,

including considerations

relating to the pandemic

recovery funds together with

Puerto Rico government debt

restructuring and the ultimate

sustainability of the

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

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

See Note 20

– “

Income Taxes”

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

to income taxes.

OTHER ESTIMATES

In addition to the critical accounting estimates we make

in connection with the ACL and the accounting for

income taxes, the use of

and

is

also

important

in

the

of

the

for

and

assets,

pension

and

benefit

and

for

losses

that

may

arise

from litigation and regulatory proceedings (including governmental investigations).

of

often

involve

due

to

the

need

to

fair

value

in

the

absence

of

readily

available market

prices. Since Level

1 and

Level 2 financial

instruments rely

on observable

market prices,

estimates are

minimal. On

the other

hand, Level

3 valuations

involve significant

unobservable inputs,

such as

internal models

or assumptions

about future

cash

flows,

which

introduce

a

higher

degree

of

subjectivity

and

estimation

uncertainty.

Notwithstanding,

as

of

31,

and

2023, less than

1% of the

available-for-sale debt securities

portfolio was classified

as Level 3.

In addition, fair

value is also

used on a

non-recurring basis

for measuring

of certain Level

3 assets such

dependent loans

and OREO

properties, as

disclosed in Note 23 – “Fair Value”

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

Goodwill is

assessed for

impairment at

least annually

and more

frequently if

circumstances exist

that indicate

a possible

in the

of a

reporting unit

below its

carrying value.

When assessing

goodwill for

impairment, first,

a qualitative

can be

made to

determine whether

it is

more likely

than not

estimated fair

unit is

its estimated

carrying value. If

the results of the

qualitative assessment are

not conclusive, a

quantitative goodwill test

is performed. Estimating

the

fair

value

of

our

units

judgment.

Critical

inputs

to

the

fair

value

may

include

earnings,

macroeconomic conditions, interest

rate levels, and peers

performance. See Note 1 –

“Nature of Business and

Summary of Significant

Policies”

and

Note

–

“Goodwill

and

Other

Intangibles”

in

Part

II,

Item

of

this

Form

10-K

for

further

about

and

assets.

Based

on

our

annual

of

in

the

fourth

quarter

of

2024,

it

was

that

it

is

more-likely-than-not

that

the

fair

value

of

the

units

exceeded their carrying value; therefore, goodwill is considered not impaired.

Identifiable

assets

are

tested

for

when

events

or

changes

in

suggest

that

an

asset’s

or

asset

group’s

value

may

not

be

fully

recoverable.

Judgment

is

to

whether

indications

of

have

occurred,

and

to

test intangible

assets for

if

required.

An

if

the

undiscounted

relating to

the asset

or asset

group is

the corresponding

carrying value.

The amortization

of identified

assets

is

based

upon

the

to

be

over

their

life,

which

is

also

subjective.

Customer

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

the estimated economic life of intangibles assets.

The

two

frozen

noncontributory

defined

benefit

pension

plans,

and

a

related

complementary

plan

medical benefits

and

life insurance

after retirement.

Calculation

of the

and

related

under

these

plans

the

use

of

methods

and

which

are

subject

to

and may

differ

if different

assumptions are

used. The

discount rate

assumption used

to measure

the postretirement

benefit

is estimated

as the

single equivalent

rate such

present

the plan’s

using

the

single

rate

equals

the

present

value

of

those

cash

flows

using

the

above

mean

yield

curves.

See

Note

–

“Employee Benefit Plans” included in Part II, Item 8 of this Form 10-K, for disclosures

related to the benefit plans.

As necessary,

we

also estimate

and

provide

for potential

losses that

may

arise out

of litigation

and

proceedings to

the

extent

that

such losses

are

and

can be

estimated.

Judgment

in making

these

and

our

final

liabilities may

ultimately be

materially different.

Our total

estimated liability

to litigation

proceedings is

on

a case-by-case

basis

and

an

of

losses

after

considering,

among

other

the

latest

advice from

legal

counsel,

and

coverage.

The outcomes

of

legal actions

are unpredictable

and subject

to significant

uncertainties, and

it is

inherently difficult

to determine

whether any

loss is

probable or

even possible.

It is

also

difficult

to

the

amount

of

any

loss

and

there

may

be

matters

for

which

a

loss

is

or

possible but not

currently estimable. Accordingly,

actual losses may

be in excess

of the established

accrual or the

range of reasonably

possible loss. See Note 27 – “Regulatory Matters, Commitments and

Contingencies”

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

RESULTS

OF OPERATIONS

Net Interest Income

income is

the excess of

interest earned

by First BanCorp.

on its interest-earning

assets over

incurred on its

First

net

income

is

subject

to

rate

risk

due

to

the

and

of

the

assets

and

In

sources

of

income,

such

as

loan

fees,

periodic

dividends, and

collection of

interest in

nonaccrual loans,

can fluctuate

from period

to period.

ended

$807.5 million, compared

to $797.1 million for

the year ended December

31, 2023. On a tax-equivalent

basis

and excluding

in the

instruments, net

for the

$826.9 million, compared to $818.0 million for the year ended December

The

tables

include a

detailed

of net

for

the indicated

Part I

average volumes

(based

on

the

average

daily

balance)

and

rates

on

an

basis

and

Part

II

presents,

also

on

an

tax-

equivalent basis,

and changes

in the

volume of

interest-related assets

have

income. For

each category

of interest-earning

liabilities, the

tables

provide

on

changes

in

(i)

volume

(changes

in

volume

multiplied

by

prior

period

rates),

and

(ii)

rate

(changes

in

rate

multiplied by

prior period

volumes). The

allocated rate-volume

variances (changes

in rate

multiplied by

volume) to either the changes in volume or the changes in rate based upon the

effect of each factor on the combined totals.

Net

income

on

an

tax

basis and

the

change

in

value

is a

measure.

For

the

definition

of

this

measure,

refer

to

the

in

Financial Measures and Reconciliations” above.

Average volume

(1)

/ expense

Average rate

(1)

31,

Interest-earning assets:

$

710,945

$

584,083

$

1,156,127

$

37,082

$

30,419

$

11,791

5.22

%

5.21

%

1.02

%

Government obligations

(2)

2,517,327

2,843,284

2,870,889

34,139

40,314

39,033

1.36

%

1.42

%

1.36

%

MBS

3,348,925

3,702,908

4,052,660

59,092

67,641

85,090

1.76

%

1.83

%

2.10

%

34,161

36,606

20,419

3,266

2,799

1,114

9.56

%

7.65

%

5.46

%

18,510

14,167

12,747

2.93

%

3.46

%

0.99

%

(3)

134,122

141,663

137,154

2.02

%

1.97

%

1.69

%

2,816,732

2,814,102

2,886,594

164,238

160,009

160,359

5.83

%

5.69

%

5.56

%

221,822

172,952

121,642

19,260

14,811

7,350

8.68

%

8.56

%

6.04

%

C&I and commercial mortgage loans

5,606,827

5,244,503

5,092,638

405,481

365,185

281,486

7.23

%

6.96

%

5.53

%

879,437

789,870

636,507

69,218

60,909

46,842

7.87

%

7.71

%

7.36

%

2,830,678

2,704,877

2,461,632

322,267

301,756

262,542

11.38

%

11.16

%

10.67

%

(4)(5)

980,464

902,670

758,579

7.94

%

7.70

%

6.77

%

Total interest-earning assets

$

$

$

$

1,114,586

$

1,044,333

$

895,733

5.87

%

5.52

%

4.64

%

Interest-bearing liabilities:

$

2,999,078

$

2,590,313

$

2,213,145

$

105,712

$

68,605

$

18,102

3.52

%

2.65

%

0.82

%

627,454

348,829

69,694

31,833

16,630

1,500

5.07

%

4.77

%

2.15

%

7,567,514

7,664,793

8,279,320

115,562

100,226

26,759

1.53

%

1.31

%

0.32

%

54,570

194,948

2,769

7,555

4.90

%

5.07

%

3.88

%

500,055

541,000

179,452

22,566

24,608

5,136

4.51

%

4.55

%

2.86

%

146,044

171,184

184,173

11,989

13,538

8,269

8.21

%

7.91

%

4.49

%

Total interest-bearing liabilities

$

$

$

$

287,674

$

226,376

$

67,321

2.43

%

1.99

%

0.61

%

Net interest income on a tax-equivalent basis and excluding

$

826,912

$

817,957

$

828,412

Interest rate spread

3.44

%

3.53

%

4.03

%

Net interest margin

4.36

%

4.33

%

4.29

%

(1)

On an adjusted

tax-equivalent basis. The

Corporation estimated the adjusted

tax-equivalent yield by

dividing the interest

rate spread on

exempt assets by

1 less the Puerto

Rico statutory

tax rate of 37.5% and

adding to it the cost

of interest-bearing liabilities. The

tax-equivalent adjustment recognizes the

income tax savings when

comparing taxable and tax-exempt

assets.

that it

is a

standard practice

in the

banking industry

to present

income, interest

rate spread

and net

interest margin

on a

fully tax-equivalent

basis.

Therefore, management believes

these measures provide

useful information to investors

by allowing them to

make peer comparisons.

The Corporation excludes changes

in the fair value

of derivatives from interest income because the changes

in valuation do not affect interest received. See “Non-GAAP

Financial Measures and Reconciliations” above.

(2)

Government obligations include debt issued by government-sponsored

(3)

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

are excluded from the average volumes.

(4)

Average loan balances include

the average of nonaccrual loans.

(5)

on loans

includes $13.4

$11.9

$11.2

ended

from prepayment

penalties and late fees related to the Corporation’s

loan portfolio.

Part II

2024 Compared to 2023

2023 Compared to 2022

Variance due to:

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

Interest income on interest-earning assets:

$

6,516

$

$

6,663

$

(17,813)

$

36,441

$

18,628

Government obligations

(4,543)

(1,632)

(6,175)

(382)

1,663

1,281

MBS

(6,423)

(2,126)

(8,549)

(6,963)

(10,486)

(17,449)

(215)

1,118

1,685

(85)

(4,527)

(3,014)

(7,541)

(24,024)

28,533

4,509

4,095

4,229

(4,075)

3,725

(350)

4,190

4,449

3,751

3,710

7,461

C&I and commercial mortgage loans

25,143

15,153

40,296

8,618

75,081

83,699

6,868

1,441

8,309

11,737

2,330

14,067

13,623

6,888

20,511

26,758

12,456

39,214

49,958

27,836

77,794

46,789

97,302

144,091

Total interest income

$

45,431

$

24,822

$

70,253

$

22,765

125,835

$

148,600

Interest expense on interest-bearing liabilities:

$

11,890

$

25,217

$

37,107

$

3,574

$

46,929

$

50,503

13,992

1,211

15,203

11,608

3,522

15,130

(1,537)

16,873

15,336

(5,011)

78,478

73,467

(2,757)

(2,757)

(6,282)

1,496

(4,786)

(1,905)

(137)

(2,042)

15,066

4,406

19,472

(2,044)

(1,549)

(805)

6,074

5,269

Total interest expense

17,639

43,659

61,298

18,150

140,905

159,055

Change in net interest income

$

27,792

$

(18,837)

$

8,955

$

4,615

$

(15,070)

$

(10,455)

Portions of the Corporation’s

interest-earning assets, mostly investments

in obligations of some U.S.

government agencies and U.S.

GSEs, generate

interest that

is exempt

from income

tax, principally

Rico. Also,

gains on

held by

international banking

entities (“IBEs”)

are tax-exempt

under Puerto

law (see

Note 20

– “Income

Taxes

to

the

audited

in

Part

II,

Item

of

this

Form

10-K

for

information).

that

the

of

income

on

an

basis

facilitates

the

comparison

of

all

interest data

these assets. The

Corporation estimated

the tax

equivalent yield

by dividing

rate spread

on exempt

assets

by

less

the

Puerto

Rico

tax

rate

(37.5%)

and

adding

to

it

the

average

cost

of

The

computation considers the interest expense disallowance required

by Puerto Rico tax law.

that

the

of

net

income,

the

effects

of

the

changes

in

the

fair

value

of

the

(“valuations”),

about

the

net

income

and

facilitates

comparability and analysis from

period to period. The changes

in the fair value of

the derivative instruments have

no effect on interest

earned on interest-earning assets.

table reconciles

income in

GAAP to

income, excluding

valuations, and

net

income

on

an

basis

for

the

The

table

also

reconciles

net

spread

and

net

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

on an adjusted tax-equivalent basis:

Interest income - GAAP

$

$

862,614

Unrealized loss (gain) on derivative instruments

(30)

Interest income excluding valuations - non-GAAP

1,023,494

862,584

Tax-equivalent adjustment

19,433

20,839

33,149

Interest income on a tax-equivalent basis

1,114,586

$

1,044,333

$

895,733

Interest expense - GAAP

287,674

$

226,376

$

67,321

Net interest income - GAAP

807,479

$

797,110

$

795,293

Net interest income excluding valuations - non-GAAP

807,479

$

797,118

$

795,263

Net interest income on a tax-equivalent basis

826,912

$

817,957

$

828,412

Average Balances

Loans and leases

$

$

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

cash balances

Average Interest-Earning Assets

$

$

Average Interest-Bearing Liabilities

$

$

Average Assets

(1)

$

$

Average Non-Interest-Bearing Deposits

5,351,124

$

5,741,345

$

6,391,171

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.77%

5.41%

4.47%

Average rate on interest-bearing liabilities - GAAP

2.43%

1.99%

0.61%

Net interest spread - GAAP

3.34%

3.42%

3.86%

Net interest margin - GAAP

4.25%

4.22%

4.12%

Average yield on interest-earning assets excluding valuations

• non-GAAP

5.77%

5.41%

4.47%

Average rate on interest-bearing liabilities

2.43%

1.99%

0.61%

Net interest spread excluding valuations

• non-GAAP

3.34%

3.42%

3.86%

Net interest margin excluding valuations - non-GAAP

4.25%

4.22%

4.12%

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

basis and excluding

5.87%

5.52%

4.64%

Average rate on interest-bearing liabilities

2.43%

1.99%

0.61%

Net interest spread on a tax-equivalent basis

3.44%

3.53%

4.03%

Net interest margin on a tax-equivalent basis and excluding

4.36%

4.33%

4.29%

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

and debt securities, as well as unrealized gains and losses on available-for-sale

debt securities.

Net

income

to

$807.5

million

for

the

year

ended

31,

2024,

an

of

$10.4

million

when

compared to $797.1 million for same period in 2023. The $10.4 million

increase in net interest income was primarily due to:

●

A $74.9 million increase in interest income on loans,

including:

A $41.8

million

in

on

and

loans,

driven

by

a

$29.8

million

with

a

$411.2

million

in

the

average

balance,

and

a

$12.0

million

related

to

the

effect

of

higher market interest rates on the upward repricing of variable-rate

loans and on new loan originations.

As

of

31,

2024,

the

rate

on

53%

of

the

and

loans was tied

to variable

rates, with 33%

SOFR of 3

months or

less, 12% based

upon the

Prime rate index,

and 8% based

on other indexes.

2024, the average

one-month SOFR increased

4 basis

points, the

average three-month

SOFR decreased

basis points,

and the

average Prime

rate increased

12 basis

points,

compared to the average rates for such indexes for the year ended December

A

$28.8

million

in

income

on

loans

and

finance

leases,

due

to

a

$215.4

million

increase in the average balance of this portfolio, mainly auto loans and finance leases.

●

A $61.3 million increase in interest expense on interest-bearing liabilities, consisting

of:

A

$37.1

million

in

expense

on

time

CDs,

of

which

$25.2

million

was

related to higher

rates in 2024

on new issuances

and renewals,

also associated with

the higher

interest rate environment,

and $11.9

million was driven

by a $408.8

in the average

balance. The

average cost of

time deposits for

2024,

excluding brokered CDs, increased 87 bps to 3.52% as compared to 2.65%

for the same period in 2023.

A $15.3 million

increase in interest expense

on interest-bearing checking

and saving accounts,

also related to

higher interest

rate environment. The

average cost of

interest-bearing checking

and saving accounts

22 bps

to

1.53%

for

as

to

1.31%

for

the

same

period

in

2023,

mostly

driven

by

in

the

region. Excluding

government deposits,

the average

cost of

interest-bearing checking

and savings

for 2024 was 0.78%, compared to 0.70% for the same period in 2023.

A

$15.2

million

in

expense

on

CDs,

driven

by

a

$278.6

million

in

the

average

balance.

A

$6.3

million

in

expense

on

mainly

due

to

a

$2.8

million

on

repurchase agreements

since they

were not

used as

a funding

source during

2024; a

$2.0 million

decrease on

from the FHLB, mainly

associated with a $40.9

million decrease in the average

balance;

and a $1.5 million

decrease due

to redemptions of junior subordinated debentures.

●

A

$3.2

million

in

income

from

total

mainly

due

to

a

$10.4

million

net

in

income

from

debt

mainly

with

a

$679.9

million

in

the

average

balance

driven

by

of $623.4

maturities of

with an

average yield

of 0.74%

as well

as repayments

of U.S.

MBS

and

offset

by

a

$6.7

million

in

income

from

cash

balances,

which

of cash

deposited at

the

FED, mainly

due to

a $126.9

million

in the

average balance.

Net

margin

for

the

year

ended

31,

was

4.25%,

to

4.22%

for

the

same

period

in

The

in the

margin

by a

change in

asset mix

from

in interest-bearing

cash balances

deposited at the FED as a result of an increase in deposits, and the deployment

of cash flows from lower-yielding investment securities

to fund

loan growth

as well

as the

effect

of the

higher

on commercial

and

loan yields,

offset by a

higher cost of

funds associated with

the higher interest

rate environment

combined with a

change in deposit

mix reflecting

a continued migration

from non-interest-bearing

and other low-cost deposits

to higher-cost deposits,

as well as the

increase in balance

of brokered CDs.

Provision for Credit Losses

finance leases was

$62.9 million

$66.6 million for the year ended December 31, 2023. The variances by

major portfolio category were as follows:

●

Provision for credit

losses for the

loan portfolios was

of $17.5 million

ended of December 31,

2024, compared to an expense

of $5.7 million for the

year ended December 31, 2023.

The net benefit

during

was

with

the

of

certain

borrowers,

an

on

the

economic outlook of

certain macroeconomic variables,

particularly variables associated

with commercial

and the

forecasted CRE

price index;

a recovery

of $5.0

with a

in the

region,

and

$1.2

million

in

of

two

loans

in

the

Florida

region;

offset

by

growth.

Meanwhile, the expense

recorded during 2023

was mainly due

to the increase

in the size of

the commercial and

loan portfolios,

a $6.0

million charge

a nonaccrual

C&I participated

loan in

region in

the power

generation industry,

a $1.7 million

incremental reserve

2023 associated

inflow to nonaccrual

status

of

a

$9.5

million

C&I

loan

in the

Puerto

Rico

region,

and a

$1.0

million

on

a

loan

to

OREO

during

2023,

offset

by

an

on

the

outlook

of

certain

macroeconomic variables, such as the unemployment rate.

●

for

for

the residential

was a

of $16.2

million

for the

compared to a net benefit

of $6.9 million for

year ended December 31,

in net benefit

updated historical

loss experience

used for

determining the

ACL estimate

resulting in

a

downward

revision

of

loss

severities

and

lower

reserve

levels

as

further

in

Note

–

Held

for

Investment,”

and

a

higher

benefit

with

updated

mainly

in

the

projection of the unemployment rate in the Puerto Rico region,

partially offset by newly originated loans.

●

the consumer

loan and

finance lease

was an

expense of

$96.6

to an expense

of $67.8

provision expense

levels in

these portfolios

and portfolio

growth, partially

offset

by

a

$10.0

million

with

the

bulk

sale

of

fully

loans

during

and

an

on

the

outlook

of

certain

mainly

in

the projection

of

the unemployment

rate.

Provision for credit losses for

unfunded loan commitments

The

for

for

and

loan

standby

credit for

the

year ended December 31, 2024 was a net benefit of

$1.5 million, compared to an expense of $0.4 million

for the year ended December

31,

on the

outlook

variables, particularly in variables associated with the CRE price index.

Provision for credit losses for

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

was a

of $1.4

to a net

benefit of $6.1

The net benefit

driven

by the

refinancing of

a $46.5

million

municipal bond

into a

shorter-term

commercial loan

and, to

a lesser

extent,

a

reduction in qualitative reserves driven by updated financial information of certain

bond issuers received during 2023.

The provision for

credit losses for

securities for the

31, 2024 was

of $50

thousand, compared to an expense of $20 thousand for the year ended December

Non-Interest Income

for the

2024 amounted

to $130.7

to $132.7

period in 2023. Non-interest income for the year ended

December 31, 2023 included the following Special Items: the $3.6 million

gain

from

a

legal

settlement,

as part

of “other

income,”

and

the

$1.6

million

gain

on

of

$21.4

million

in

junior

as

“gain

on

early

of

debt.”

See

Measures and

Reconciliations” above

information. On

a non-GAAP

basis, excluding

Special Items,

adjusted non-interest income increased by $3.2 million primarily due

to:

●

A

$2.8

million

in

card

and

income,

mainly

in

fees

due

to

higher

transactional

volumes.

●

A $2.1 million

increase in revenues

from mortgage banking

activities, driven by

a $2.1 million increase

in the net

gain on sales

of residential mortgage

loans in the

secondary market mainly

due to higher

margins. During

net

gains

of

$5.4

million

and

$3.3

were

as

a

result

of

GNMA

transactions and whole loan sales to U.S. GSEs amounting to $160.0 million and

$155.2 million, respectively.

●

A $0.8 million increase in insurance commission income,

mainly related to higher contingent commissions.

●

A $0.8

in service

charges and

fees on

deposit accounts,

in part

due to

in the

number of

cash

management transactions of commercial clients.

●

A $3.3

million decrease

in adjusted

other non-interest

income mainly

due to

a $3.0

million gain

associated with the sale of a banking premise in the Florida region.

Non-Interest Expenses

Non-interest expenses for

the year ended December

31, 2024 amounted to $487.1

million, compared to $471.4

million for the same

period in 2023. The efficiency

ratio for 2024 was 51.92%, compared

to 50.70% for the same period in 2023.

Non-interest expenses

for

and 2023 include

the $1.1 million

and $6.3 million

FDIC special assessment

expense. See “Non-

GAAP Financial Measures

and Reconciliations”

above for additional

information. On

a non-GAAP basis,

effect of

this

Special Item, adjusted non-interest expenses

increased by $20.9 million primarily due to:

●

A $12.8

in employees’

benefits expenses,

annual salary

merit increases

and

in

bonuses

and

to

the

retirement plan.

●

A

$3.6

million

in

service

fees,

mainly

due

to

a

$2.4

million

in

consulting

fees

driven

by

information technology infrastructure enhancements,

and a $0.8 million increase in outsourced technology service fees.

●

A

$2.5

million

in

occupancy

and

equipment

mainly

related

to

an

in

charges,

partially offset by a decrease in depreciation charges.

●

A $1.6 million increase in credit and debit card processing fees, driven

by higher transactional volumes.

●

A $1.3 million increase in other

non-interest expenses, mainly due to

a $3.5 million increase in charges

for operational and

fraud

losses,

offset

by

a

of

$1.3

million

in

the

of

assets

(mainly

from

core

deposit intangible

assets related

to savings

accounts from

the Banco

Santander Puerto

Rico acquisition,

which were

fully

amortized in 2024),

and a $0.7 million favorable variance in net periodic (benefit) cost of pension

plans.

●

A $1.0 million increase in taxes, other than income taxes, primarily related

to higher municipal license taxes.

●

A $2.0 million decrease in business promotion expenses, as a result of lower marketing

For

the

year

ended

31,

2024,

the

an

income

tax

expense

of

$92.5

to

$94.6

million, for the same period in 2023.

The decrease in income tax expense was mainly due to lower pre-tax

income.

The

annual effective

tax rate,

entities with

pre-tax

losses from

which

a tax

benefit cannot

be recognized

and discrete

items, was 23.0

%

for the

2024, compared

to 23.5% for

in 2023. The

of the Corporation

is impacted by,

relationship of

taxable to exempt

income.

See Note 20

– “Income

Taxes”

to the audited consolidated financial statements included in Part II, Item 8

of this Form 10-K for additional information.

As of

a net

$136.4 million,

net of

$119.1

a net

$150.1

net of

$139.2 million,

as of

The decrease in the net deferred

tax asset was mainly related to

the usage of alternative minimum

tax credits and the decrease

in

the ACL.

allowance was

available-for-

sale

debt

and

the

of

capital

loss

carryforwards,

both

which

in

an

equal

change

in

the

net

tax

asset without impacting earnings.

OPERATING SEGMENTS

operating segments

are based

primarily on

business for

Rico,

principal market,

and by

geographic areas

for its

operations outside

Rico. As

the

had

six

segments:

and

Investments; United States Operations;

and Virgin

Islands Operations. The Chief Executive

Officer (“CEO”), who

is the

chief

maker

(“CODM”),

as

ultimate

maker,

and

allocates

based

on financial

by management.

In determining

the reportable

segments,

the

factors

such as

the organizational

structure, nature

of the

channels, customer

characteristics of

the business

lines. For

regarding First

segments, please

refer

to Note

25, “Segment Information” to the audited financial statements included

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

The accounting

policies for

segment reporting

are consistent with

those described

in Note 1,

“Nature of

Business and

Summary of

Policies” to

in Part

8 of

10-K.

evaluates the performance

of the segments based

on net interest income,

the provision for

credit losses, non-interest

income, and non-

expenses.

The

are

also

based

on

the

average

volume

of

their

assets

(net

of

fair

value

adjustments of investment securities and the ACL).

uses a

funds transfer

pricing system

to match fund

deposit gathering

functions with

and

segment

centrally

funding

by

funds

to

the

and

the

United

States

and

the

Virgin

Islands

to

support

their

lending

and

compensating

these

units

for

gathered.

The

between

funds

and

funds

used

is

managed

by

the

and

The

funds

pricing

charged

or

are

using

the

SOFR/swap curve with term rates-based approach,

adjusted for a funding spread that reflects the Corporation’s

cost of funds.

During the

fourth quarter

of 2024,

adopted Accounting

Standard Update

(“ASU”) 2023-07.

as part

of

the

ongoing

efforts

to

enhance

in

the

fourth

quarter

of

2024,

the

refined

its

segment

performance methodology.

These refinements align

with improvements in

internal reporting and

included changes in

the allocation of

support

units

and

overhead

of

funds

pricing

(“FTP”),

and

recharacterization

of

certain

comparability,

prior period

segment

results have

been recast

these refinements.

For the

years

and

2022,

updated

segment

results

include

support

centers

and

overhead

expense

allocations

of

$168.7

million

and

$155.3

which mainly impacted

the Consumer (Retail)

Banking segment. In

both periods, the

allocation of support

units

and overhead expenses primarily affected the

expense categories of employee’s

compensation and benefits, occupancy and equipment,

and professional

service fees.

25, “Segment

Information”, to

included in

of

this Form 10-K for a detailed discussion of ASU 2023-07 adoption

and key refinements and their impact on segment reporting.

Mortgage Banking

The Mortgage Banking

segment conducts its operations

primarily through FirstBank.

This segment consists of

the origination, sale,

and

of

a

variety

of

loan

Originations

are

sourced

through

channels,

such

as

FirstBank branches

and purchases

bankers, and

in association

with new

project developers.

This segment

focuses on

originating residential real estate loans, including those that conform

to the Federal Housing Administration (the “FHA”), the Veterans

Administration

(the

“VA”),

and

U.S.

of

Agriculture

Rural

(“RD”)

Loans

that

meet

FHA’s

standards qualify for FHA’s

insurance, while loans that meet VA

or RD standards are guaranteed by the respective federal agencies.

loans

that

do

not

qualify

for

the

FHA,

VA,

or

RD

are

to

as

loans,

which

can

be

conforming or non-conforming. Conforming

loans are those that meet the

standards for sale under the U.S.

Federal National Mortgage

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

(“FHLMC”)

Loans

that

do

not

meet

FNMA

or

FHLMC

are

to

as

real

estate

loans.

The

Banking

segment

also

and

sells mortgages

in the

market.

Conforming

sold to

such

as FNMA

and FHLMC, and the Corporation has commitment authority to issue GNMA

MBS.

For the year ended December 31, 2024, segment income before

taxes for the Mortgage Banking segment increased to $58.5 million,

compared to $55.0 million for the same period in 2023. The highlights

of the segment’s financial results are as follows

:

●

was $72.5

to $75.8

income of

$3.3 million

attributable to

a change

in asset

mix

and related funding costs.

●

of $15.5

to a

of $7.9

updated historical

loss experience used

for determining

the ACL estimate

resulting in

a downward

revision of estimated

loss

severities

and

lower

reserve

levels

as

further

in

Note

–

Held

for

Investment,”

and

a

higher

benefit

with

updated

mainly

in

the

projection

of

the

unemployment rate, partially offset by newly originated

loans.

●

for the

$13.5 million,

$11.2

period

in

The

of

$2.3

million

by an

in

the

net

gain

on

mortgage loans in the secondary market mainly due to higher margins.

●

Non-interest expenses for the year ended December 31, 2024 were $43.0

million, compared to $39.9 million for the same

$3.1 million

by: (i)

a $1.6

in employees’

mainly

related

to

annual

salary

merit

and

in

bonuses

accruals

and

contributions to the

employees’ retirement plan;

(ii) a $1.8

million decrease in

net gains on

OREO operations, driven

by

a

in net

gains on

OREO properties

in

Rico

region;

(iii)

a $0.6

million

in

service

fees,

driven

by

higher

collections,

appraisals,

and

credit-related

fees;

and

(iv)

a

$0.4

million

in taxes,

other than

income taxes,

related

municipal license

taxes. These

were partially

a $1.0

million decrease

in FDIC

expense due

to the

lower special

charge recognized during 2024.

Consumer (Retail) Banking

The

Banking

segment

the

lending

to

small

and

(other

than

those assigned

to

the

and

Banking

segment) primarily

conducted through

branch network

centers in Puerto

Rico.

Retail deposits

gathered through

each branch

of FirstBank’s

retail network

serve as one

of the funding

sources for the

investing activities.

Other activities

included in this segment are insurance activities in the Puerto Rico region.

For

the

year

ended

31,

2024,

segment

income

before

taxes

for

the

Banking

segment

to

$243.3

to

$210.4

million

for

the

same

period

in

The

of

the

segment’s

results

are

as

follows:

●

$550.8 million, compared

to $484.3 million

for the same

of $66.6

million was primarily

higher income

from funds loaned

to the Treasury

and

segment,

which

from higher

rates

and

higher

average deposit

which

more than offset the increase in interest rates paid on retail deposits.

●

The

for

credit

losses

for

the

year

ended

31,

by

$29.2

million

to

$95.3

$66.1 million for

in 2023. The

increase in provision

expense was driven

by higher charge-

off and delinquency levels

and portfolio growth, partially offset by

a $10.0 million recovery associated with

the bulk sale

of fully charged-off

loans recorded during 2024 and

an improvement on the economic outlook

of certain macroeconomic

variables, mainly in the projection of the unemployment rate.

●

for the

$96.2 million,

$92.6 million

for the

same

period in 2023. The increase of $3.6 million was driven

by a $2.4 million increase in card and processing income,

mainly

in

fees

due

to

higher

transactional

volumes,

and

a

$0.9

million

in

income, mainly related to higher contingent commissions.

●

expenses for

were $308.4

to $300.4

the

same period in 2023.

The increase of $8.0 million

was driven by: (i) a

$5.8 million increase in employees’

and

mainly

related

to

annual

salary

merit

and

in

bonuses

and

to

the

plan;

(ii)

a

$2.3

million

in

professional service

fees, driven

by information

technology infrastructure

enhancements; (iii)

a $1.5

in

occupancy and

equipment expenses;

and (iv)

a $1.4

in credit

and debit

card processing

fees, driven

by

higher transactional volumes.

These variances were partially

offset by a $1.6

million decrease in FDIC deposit

expense

due

to

a

lower

special

charge

during

2024,

and

a

$1.5

million

in

promotion expenses, as a result of lower marketing efforts.

Commercial and Corporate Banking

The

and

Banking

segment

of

the

lending

and

other

for

large

represented

by

and

middle-market

clients

and

the

sector.

This

segment

of

the

commercial lending (other than small

business commercial loans) and commercial

deposit-taking activities (other than the

sector). A substantial

portion of the

commercial and corporate

banking portfolio is

secured by the underlying

real estate collateral

and

the personal guarantees from the borrowers.

For

the

year

ended

31,

2024,

segment

income

before

taxes

for

the

and

Banking

segment

increased to $137.9

million, compared to $119.8

million for the same

period in 2023. The

highlights of the segment’s

financial results

are as follows:

●

$157.7 million, compared

to $142.3 million

for the same

period

in 2023.

The increase

of $15.3

million

to a

$22.7

million

in interest

income

due to

higher average

loan balances

of higher

rates on

the upward

repricing of

loans.

These

factors

were

offset

by

a

$6.5

million

in

the

cost

of

funds

charged

to

this

segment resulting from higher market interest rates.

●

of $12.9

to a

of $6.0

million

for the

same period

in 2023.

The net

benefit

was associated

improved financial

condition of

certain borrowers;

a recovery

of $5.0

with a

in the

Puerto

Rico

region;

and

an

on

the

outlook

of

certain

with

real

estate

and

the

CRE

price

index;

offset

by

portfolio growth.

2023 reflects

on the

economic outlook

of

certain

variables such

as the

unemployment rate,

by a

$1.7 million

reserve

with

the

inflow

to

status

of

a

$9.5

million

C&I

loan

and

a

$1.0

million

charge

on

a

nonaccrual commercial mortgage loan transferred to OREO during 2023.

●

income

for the

$7.0

$11.1

million

for the

same

period

in

The

of

$4.1

million

was

driven

by

the

$3.6

million

gain

in

from

a

legal

settlement.

●

Non-interest expenses for the year ended December 31, 2024 were $39.7

million, compared to $39.6 million for the same

period in 2023.

The increase of

$0.1 million was

mainly due to

a $2.1 million

increase in employees’

mainly

related

to

annual

salary

merit

and

in

bonuses

accruals

and

expense; a

$0.8 million

in taxes,

other than

income taxes,

related

license taxes; and a $0.7

million increase in occupancy and equipment

expenses. These variances were partially

a

$2.6

million

in

net

gains

on

OREO

driven

by

a

$2.3

million

gain

on

the

sale

of

a

real

estate

OREO

in

the

Puerto

Rico

region

during

2024;

and

a

$1.4

million

in

FDIC

deposit insurance expense due to a lower special assessment charge

recognized during 2024.

The

and

segment

is

for

the

and

The

function centrally

manages funding

by providing

funds to

the Mortgage

Consumer (Retail)

and

United

States

and

Virgin

Islands

to

support

their

lending

activities and by

compensating these

units for deposits

gathered. The

Treasury function

also obtains funds

through brokered

advances from the FHLB, and repurchase agreements involving investment

securities, among other funding sources.

The

is intended

to

a

funding

for

the

purposes of

risk

management and earnings enhancement.

The funds

transfer pricing

charged

or credited

by Treasury

and Investments

are calculated

SOFR/swap curve

with term

rates, adjusted for a funding spread that reflects the Corporation’s

cost of funds.

For the

loss before

taxes for

and Investments

segment was

$120.8 million,

compared to $38.4 million for the same period in 2023. The highlights

of the segment’s financial results are as follows:

●

Net

loss

for

the

year

ended

31,

was

$112.1

to

$31.9

million

for

the

same

loss of

$80.3 million

due to

a higher

charge on

funds loaned

from the Consumer (Retail) Banking segment.

●

income

for

the

year

ended

31,

was

$0.5

to

$2.1

million

for

the

same

decrease was

the $1.6

million gain,

2023, on

of $21.4

million in junior subordinated debentures.

●

Non-interest expenses

for the

2024 were

$9.2 million,

$8.6 million

for the

same

period in 2023. The increase of $0.6 million was mainly in professional service

fees.

United States Operations

The United

segment

activities conducted

by FirstBank

on the

U.S. mainland.

provides a wide

range of banking services

to individual and corporate

primarily in southern

Florida, through eight

banking

branches.

This

segment

offers

a

variety

of

and

banking

and

banking

include checking,

savings and

money market

accounts, retail

CDs, internet

banking services,

residential mortgages,

and home

equity

credit. Retail

as well

as FHLB

and brokered

CDs, allocated

to this

operation serve

as funding

sources for its lending activities.

banking

include

checking,

savings

and

money

market

retail

CDs,

internet

banking

cash

management services, remote data capture,

and automated clearing house (“ACH”)

Loan products include the traditional

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

and construction loans.

For the

income before

taxes for

segment increased

to $42.7

million, compared to $26.2 million for the same period in 2023. The highlights

of the segment’s financial results are

as follows:

●

was $78.0

to $70.8

period in 2023. The increase of $7.2 million

was mainly related to higher average loan balances combined

with the effect

of

higher

market

rates

on

the

upward

of

loans

and

on

new

loan

in

the

commercial and construction loan portfolios, that outweighed the impact of

the increase in interest rates paid on deposits.

●

of $6.7

to an

expense

of

$8.6

million

for

the

same

period

in

The

net

benefit

during

was

with

an

on

the

outlook

of

certain

with

commercial real

estate property

the forecasted

CRE price

index; and

$1.2 million

in recoveries

of two

commercial loans;

by portfolio

growth. Meanwhile,

losses recorded

during 2023

was

mainly

due

to

a

$6.0

million

charge

with

a

C&I

loan

in

the

power

●

income

for

the

year

ended

31,

was

$3.6

to

$6.8

million

for

the

same

decrease of

$3.2 million

was mainly

due to

a $3.0

million gain

2023 associated

with the sale of a banking premise.

●

Non-interest expenses for the year ended December 31, 2024 were $45.6

million, compared to $42.8 million for the same

period

in

The

of

$2.8

million

was

driven

by

a

$2.2

million

in

and

mainly

related

to

annual

salary

merit

and

in

bonuses

compensation expense, and matching contributions to the employees’

retirement plan.

Virgin

The Virgin

segment consists

of all

conducted by

FirstBank in

and BVI,

commercial and consumer

banking services.

This segment operates

through eight banking

branches serving in

the USVI islands of

St.

Thomas,

St.

Croix,

and

St.

John,

as

well

as

the

island

of

Tortola

in

the

BVI.

This

segment’s

primary

include

and

and

activities. Retail

gathered

through

each branch

serve as

the

primary

funding sources for the segment’s lending

income before taxes

for the Virgin

Islands Operations segment

increased to $29.7

to $24.6

mainly due

income from

funds loaned

to

other business segments

resulting from higher

market interest rates

that outweighed the

impact of the increase

in interest rates paid

on

government time deposits.

FINANCIAL CONDITION AND OPERATING

DATA

ANALYSIS

Financial Condition

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

ASSETS

Interest-earning assets:

$

710,945

$

584,083

$

1,156,127

U.S. and Puerto Rico government obligations

2,517,327

2,843,284

2,870,889

MBS

3,348,925

3,702,908

4,052,660

34,161

36,606

20,419

18,510

14,167

12,747

2,816,732

2,814,102

2,886,594

221,822

172,952

121,642

Commercial loans

5,606,827

5,244,503

5,092,638

879,437

789,870

636,507

2,830,678

2,704,877

2,461,632

Total interest-earning assets, excluding valuation

allowances and ACL

Total non-interest-earning assets

578,900

573,010

603,728

Valuation allowances and ACL

(1)

(602,908)

(773,939)

(536,934)

$

$

$

LIABILITIES

Interest-bearing liabilities:

$

2,999,078

$

2,590,313

$

2,213,145

627,454

348,829

69,694

7,567,514

7,664,793

8,279,320

11,194,046

10,603,935

10,562,159

54,570

194,948

500,055

541,000

179,452

146,044

171,184

184,173

Total interest-bearing liabilities

Total non-interest-bearing liabilities

(2)

5,556,423

5,950,495

6,622,638

17,396,813

17,321,184

17,743,370

STOCKHOLDERS’ EQUITY

Stockholders’ equity

1,564,543

1,385,239

1,635,279

Total liabilities and stockholders' equity

$

$

$

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

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

on available-for-sale debt securities.

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

total average assets

were $19.0

billion for the

to $18.7 billion

for the

year

31, 2023,

a net

of $254.9

The variance

primarily reflects

(i) a

$629.2 million

increase in the

average balance of

total loans,

mainly consisting

of a $411.2

loan

portfolios and an increase

of $215.4 million in

consumer loans, mainly in

the auto loan and

finance lease portfolios;

(ii) an increase of

$126.9

million in the average balance of interest-bearing

cash, which consisted primarily of deposits

maintained at the FED;

and (iii) a

of

$165.7

million

in

losses

on

debt

These

were

offset

by

a

decrease of $679.9 million in debt securities, mainly due to maturities

and principal repayments of U.S. agencies MBS and debentures

,

net of purchases.

total average liabilities were

$17.4 billion for the

year ended December 31,

2024, a net increase

of $75.6 million

net increase

was related

to increases

of $408.8

the average

balance of

non-brokered

time

and

$278.6

million

in

the

average

balance

of

CDs.

These

were

offset

by

a

of

$394.1 million in the average balance of non-interest-bearing

liabilities, primarily in non-interest-bearing deposits, reflecting

of

allocating

more

cash

into

higher

yielding

alternatives;

a

of

$120.4

million

in

the

average

balance

of

total

borrowings, mainly

FHLB advances,

and the aforementioned

;

and a

decrease of $97.3 million in interest-bearing non-maturity deposits.

Assets

total assets were $19.3

billion as of December

31, 2024, an increase

of $383.4 million from

December 31, 2023,

related

to

an

in

total

loans

and

cash

and

cash

equivalents,

offset

by

net

of

Loans Receivable, including Loans Held for Sale

As of

total loan

portfolio before

the ACL

$12.8 billion,

of $569.0

million

to

31,

In

terms

of

geography,

the

growth

of

of

$290.8

million

in

the

Puerto

Rico

region,

$273.0

million

in

the

Florida

region,

and

$5.2

million

in

the

Virgin

Islands

region.

On

a

basis,

the

growth

consisted of increases of

$454.3 million in commercial

and construction loans;

$100.1 million in consumer

loans,

primarily auto loans

and finance leases; and $14.6 million in residential mortgage loans.

As

of

31,

2024,

loans

held-for-investment

was

of

and

loans (48%),

leases (30%),

loans (22%).

Of the

total gross

held

of $12.7

had credit

risk concentration

of approximately

79% in

the

Puerto Rico region,

18% in the

United States region

(mainly in the

state of Florida),

and 3% in

the Virgin

Islands region, as

shown in

the following table:

Total

$

2,166,980

$

156,225

$

505,226

$

181,607

2,820

43,969

228,396

1,800,445

67,449

698,090

2,192,468

133,407

Total commercial loans

4,174,520

203,676

1,782,222

6,160,418

Consumer loans and finance leases

3,680,628

69,577

7,502

Total loans held for investment,

gross

$

10,022,128

$

429,478

$

2,294,950

$

14,558

15,276

Total loans, gross

$

10,036,686

$

429,912

$

2,295,234

$

12,761,832

Total

$

2,187,875

$

168,131

$

465,720

$

111,664

3,737

99,376

214,777

1,725,325

65,312

526,446

2,130,368

119,040

924,824

Total commercial loans

3,967,357

188,089

1,550,646

5,706,092

Consumer loans and finance leases

3,583,272

68,498

5,895

Total loans held for investment,

gross

$

9,738,504

$

424,718

$

$

7,368

7,368

Total loans, gross

$

9,745,872

$

424,718

$

$

12,192,851

First

relies

on

its

retail

network

of

to

originate

and

loans.

The

manages

its construction

and

loan originations

through

centralized

units

and

most

of

its originations

come

from existing customers,

as well as through

referrals and direct

solicitations. Auto loans

leases originations rely

on the relationships with auto dealers and dedicated sales professionals who serve

selected locations in order facilitate originations.

table sets

forth certain

additional data

(including loan

production) related

to the

Corporation's loan

portfolio net

of the

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

For the Year

Beginning balance as of January 1

$

$

11,304,667

$

10,826,783

Residential real estate loans originated and purchased

460,726

424,641

468,599

Construction loans originated

207,421

154,720

112,640

C&I and commercial mortgage loans originated and purchased

3,113,258

2,750,817

2,950,904

Finance leases originated

263,693

327,528

308,811

Consumer loans originated

1,372,537

1,468,794

1,516,316

Total loans originated

and purchased

5,417,635

5,126,500

5,357,270

Sales of loans

(165,533)

(155,733)

(293,213)

Repayments and other decreases

(1)

(4,665,220)

(4,344,426)

(4,586,173)

Net increase

586,882

626,341

477,884

Ending balance as of December 31

$

12,517,890

$

$

11,304,667

Percentage increase

4.92%

5.54%

4.41%

(1)

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

and finance leases and cancellation of loans due to the repossession

of the collateral and loans repurchased.

Residential Real Estate Loans

As of

total residential

loan portfolio,

for

sale, increased

by

$14.6

million

to

the

balance

as

of

31,

The

in

the

loan

a

growth

of

$39.8

million

in

the

Florida

region,

offset

by

decreases

of

$13.7

million

in

the

Puerto

Rico

region

and

$11.5

million

in the

Virgin

Islands

region.

The

driven

by the

volume

of new

loan

originations,

mainly

loan

kept

on

the

balance

sheet,

which

more

than

offset

repayments.

Approximately

47%

of

the

$362.2

million

loan

in

the

Puerto

Rico

region

during

of

loans,

to

46%

of

the

$324.3

million originated in 2023.

As of

majority of

outstanding balance

in the

and the Virgin

Islands regions consisted

of fixed-rate loans

that traditionally carry

higher yields than

residential mortgage loans

in the

Florida region. In

the Florida region,

approximately 34% of the

residential mortgage loan

portfolio consisted of

hybrid adjustable-rate

mortgages. In

underwriting guidelines,

primarily fully

documented

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

loan

for

the

year

ended

31,

to

$460.7

to

$424.6

in residential

mortgage loan originations

of $36.1 million

mainly consisted

of a $37.9

in the Puerto Rico region.

Commercial and Construction Loans

As of

construction loans

portfolio increased

by $454.3

million, as compared

to the

balance as

This growth

included an

$231.6 million

in the

reflecting, among

other things, the effect

of the origination of several

commercial and construction relationships,

each in excess of $10 million,

$186.3

million

are

related

to

ten

C&I

and

$63.1

million

are

related

to

four commercial

relationships.

These

variances were partially

offset by payoffs

and paydowns of

five C&I relationships

totaling $78.9

million and lower

utilization of C&I

lines of credit.

also grew

by $207.2

million, when

the balance

as of

2023. This

driven by a $69.9

million increase in construction

loans, which includes

a $46.4 million increase

in construction loans

funded through

conduit

to

support

the

federal

of

Low-Income

Housing

Tax

Credit

(“LIHTC”)

combined

with

Block

Grant-Disaster

Recovery

(“CDBG-DR”)

funding;

the

of

five

with

an

balance

of

$129.9

million;

higher

utilization

of

C&I

lines

of

credit;

and

the

of

two

loans

to

with an

of $23.6

million. These

were partially

offset

by multiple

payoffs

and paydowns,

the

payoffs

of

three

and

$47.5

million

and

the

sale

of

an

$8.2

million

nonaccrual C&I loan, net of a $1.2 million charge-off.

In

the

Virgin

Islands

region,

and

loans

by

$15.5

as

to

the

balance

as

of

December 31, 2023, mainly associated with disbursements of a government

line of credit.

See “Risk Management –

Exposure to Puerto Rico Government”

and “Risk Management –

Exposure to USVI Government”

below

for information on the Corporation’s

credit exposure to PR and USVI government entities.

As of

31,

2024,

total

loan

to

$2.6

or 20%

of

the

total loan portfolio. In terms of

geography, $1.8

billion of the exposure was in the

Puerto Rico region, $0.7 billion of

the exposure was

in the

and $0.1

billion of

the exposure

was in

the Virgin

Islands region.

The $1.8

billion exposure

in the

region was

comprised mainly

of 40%

in the

retail industry,

25% in

office real

estate, and

22% in

the hotel

The $0.7

billion

in the

Florida region

was comprised

mainly of

35% in

the retail

22% in

the hotel

and 8%

in office

real

estate. Of

total commercial

loan exposure

of $2.6

billion, $547.6

million matures

or reprices

next

months.

Of

this

amount,

$420.7

million

matures

within

the

next

months

and

has

a

rate

of

6.40%.

loan

in

the

office

real

estate

which

matures

within

the

next

months, amounted

to $120.4

has a

weighted-average interest

rate of

approximately 6.51%.

modified $127.5

million commercial

mortgage loans,

$110.0 million

are related

to a

commercial mortgage

relationship that

had been previously

reported as a troubled

debt restructuring under

ASC 310-40 and was performing

according to modified terms

and

a $12.2 million nonaccrual commercial mortgage loan in the Florida region.

As of

total exposure

to shared

national credit

(“SNC”) loans

unused

commitments) amounted

to $1.3 billion

and $1.2 billion,

$360.8 million of

the

SNC exposure is related to the portfolio in the Puerto Rico region and $894.3

million is related to the portfolio in the Florida region.

and

loan

loans)

for

the

year

ended

31,

2024 amounted

to

$3.1 billion, compared

to $2.7 billion for

of $416.3 million

was mainly due to

$347.4 million in the

Florida region.

The growth in

region for

2024 includes the

effect of

the origination

of multiple

C&I relationships,

each in

excess

of

$10

with

an

balance

of

$274.3

utilization

of

C&I

lines

of

credit,

and

an

in

commercial mortgage loan originations of $64.4 million.

Government loan originations for the year ended December

31, 2024 amounted to $179.5 million, compared to $180.7 million

for the

comparable period in 2023.

Consumer Loans and Finance Leases

As

of

31,

2024,

the

loans

and

finance

leases

by

$100.1

million

to

$3.8

mainly

in

the

Puerto

Rico

region,

growth

of

$89.9

million

and

$42.6

million

in

the

auto

loan

and

finance

lease

portfolios, respectively,

by decreases in

the remaining portfolio

classes, including a

$19.4 million decrease

in personal

loans.

Originations of

auto loans (including

finance leases) for

amounted to $933.9

to

$1.0

billion

for

the

comparable

period

in

The

was

mainly

in

the

Puerto

Rico

region.

Other

loan

originations, other

than credit

cards, for

$236.7 million,

$302.6 million

for the comparable

period in 2023.

Most of the

decrease in other

consumer loan originations

was in the

Puerto Rico region

of a higher

interest rate environment

.

The utilization activity

on the outstanding

credit card portfolio

2024 amounted to $465.6 million, compared to $492.6 million

for the comparable period in 2023.

Maturities of Loans Receivable

The following tables

present the loans

portfolio as of

by remaining contractual

maturities and

interest rate type:

After One Year

After Five Years

Total Portfolio

One Year or Less

Through Five Years

Through 15 Years

After 15 Years

$

106,819

$

416,373

$

1,152,616

$

1,152,623

$

45,976

105,823

71,184

5,413

228,396

572,353

1,619,325

369,558

4,748

1,352,683

1,674,202

336,114

3,039

1,167,710

2,337,299

252,411

(1)

$

3,245,541

$

6,153,022

$

2,181,883

$

1,166,110

$

Amount due in one year or less at:

Amount due after one year:

Total Portfolio

Fixed Interest Rates

Variable Interest

Rates

Fixed Interest Rates

Variable Interest

Rates

$

103,200

$

3,619

$

2,542,738

$

178,874

$

5,153

40,823

136,380

46,040

228,396

348,193

224,160

1,533,795

459,836

303,764

1,048,919

559,633

1,453,722

919,901

247,809

2,584,333

5,664

(1)

$

1,680,211

$

1,565,330

$

7,356,879

$

2,144,136

$

(1)

Scheduled repayments are included in the maturity category in which the payment is due. The amounts provided do not reflect prepayment assumptions related to the loan portfolio.

Investment Activities

As

part

of

its

revenue

diversification,

and

rate

risk

First

a

debt

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

The

total

debt

as

of

31,

to

$4.6

a

$664.7

million

from

31,

The

was

driven

by

of

$623.4

million

with

matured

and

$373.6

million

in

of

U.S.

MBS

and

This

was

offset

by

approximately $266.2

purchases of

securities, of

which $224.5

million consisted

U.S.

MBS

and

$40.7

million

of

U.S.

MBS,

as

well

as

$73.2

million

in

fair

value

to

changes

in

market

rates.

As

of

31,

2024,

the

had

a

net

loss

on

debt

of

$559.6

million. This

net

loss is

to

instruments on

books

a lower

rate

than market rates. The

Corporation expects that this

unrealized loss will reverse

over time and it

is likely that it will

not be required

to

sell

the

before

their

recovery.

The

expects

the

will

to

and

the

accumulated other

comprehensive loss

will decrease

rates. As

31,

2024,

cash

inflows

ranging

from

$1.5

billion

to

$1.6

which

are

to

be

during

from

the

of the

debt

securities portfolio

,

which

has an

average yield

of 1.24%.

These inflows

to be

redeployed to fund loan growth, reinvested into higher-yielding

or used to repay maturing brokered CDs.

As

of

31,

2024,

all

of

the

debt

was

invested

in

U.S.

government and

agencies debentures

and fixed-rate

GSEs’ MBS.

as of

Corporation held

a bond

issued

by

the

Puerto

Rico

Housing

Finance

as

for

sale,

a

pass-

through

MBS in

the

amount

of

$2.9

million

(fair

value

$1.6

This

MBS

issued

by

the

PRHFA

is collateralized

by certain

second

mortgages originated

under

a program

launched by

Rico government

in 2010

and had an unrealized

loss of $1.3 million

as of December 31,

2024, of which $0.3

million is due to

credit deterioration. During 2021,

placed this

instrument in

nonaccrual status

the delinquency

status of

the underlying

second mortgage

loans

As

of

31,

2024,

the

debt

before

the

ACL,

to

$317.8

million, compared to $354.2 million as of December 31, 2023.

Held-to-maturity

debt

include

GSEs’

MBS

with

a

value

of

$225.3

million

(fair

value

of

$212.4

million) as of December

31, 2024, compared to $247.1

million as of December 31,

2023. Held-to-maturity debt securities

also include

$92.4 million as

2024, compared to

$107.0 million as

2023,

of financing arrangements

with Puerto

Rico municipalities

issued in bond

form, which

the Corporation accounts

for as securities,

but which

were underwritten

as loans with

that

are

found

in

loans.

Puerto

Rico

bonds

are

not

issued

in

bearer

form,

are

not

registered with

the SEC,

and are

not rated

by external

credit agencies.

These bonds

have seniority

to the

payment of

operating costs

and

of

the

municipality

and,

in

most

cases,

are

by

tax

revenues.

As

of

31,

2024,

57%

of

the

bonds

of

issued

by

three

of

the

largest

in

The municipalities are

required by law

to levy special

property taxes

in such amounts

as are required

for the payment

of

all of their respective general obligation bonds and loans.

See

–

Exposure

Rico

Government”

below

for

and

details

about

total

direct exposure

to the

government, including

municipalities,

and “Risk

– Credit

Risk Management”

below

and Note 3 – “Debt Securities” for the ACL of the exposure to Puerto Rico

municipal bonds.

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

Money market investments

$

1,200

$

1,239

debt securities, at fair value:

U.S. government and agencies obligations

1,899,520

2,443,790

Puerto Rico government obligations

1,620

1,415

MBS:

2,481,253

2,633,161

181,909

151,618

Other

1,000

Total available-for-sale

debt securities, at fair value

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

MBS:

129,319

146,468

96,025

100,670

92,442

107,040

ACL for held-to-maturity Puerto Rico municipal bonds

(802)

(2,197)

Total held-to-maturity

316,984

351,981

Equity securities, including $34.0 million and $34.6 million of FHLB stock

as of December 31, 2024 and 2023, respectively

52,018

49,675

Total money market

investments and investment securities

$

4,935,504

$

5,632,879

The carrying values of debt securities as of December 31, 2024 by contractual maturity

(excluding MBS), are shown below:

Carrying Amount

Yield %

U.S. government and agencies obligations:

$

1,127,041

0.79

Due after one year through five years

764,679

0.96

Due after ten years

7,800

4.73

1,899,520

0.87

Puerto Rico government and municipalities obligations:

2,214

5.07

Due after one year through five years

61,289

7.33

Due after five years through ten years

13,184

5.79

Due after ten years

17,375

6.80

94,062

6.96

Other

1,000

2.32

MBS

2,888,506

1.95

ACL on held-to-maturity debt securities

(802)

Total debt securities

$

4,882,286

1.65

Net

income

in

future

periods

could

be

by

of

MBS.

Any

acceleration

in

the

of

MBS

at

a

premium

would

lower

yields

on

these

since

the

of

paid

upon

would

accelerate. Conversely,

acceleration of the

prepayments of MBS would

increase yields on

securities purchased at

a discount, since

the

accretion of the discount would accelerate. These risks are

directly linked to future period market interest rate fluctuations.

income in

future periods

might also

be affected

by the

investment in

callable securities.

As of

approximately $1.3

billion in

callable debt

securities (U.S.

agencies debt

securities) with

an average

0.81%

approximately 64%

were purchased

at a discount

and 3% at

a premium.

See “Risk Management”

below for

further analysis

of the

effects of

changing interest

rates on

strategies. Also, refer to Note 3 – “Debt Securities”

for additional information regarding the Corporation’s

debt securities portfolio.

RISK MANAGEMENT

General

Risks

are

in

virtually

all

aspects

of

the

and

Consequently,

risk

is

fundamental

to

the

success

of

the

The

primary

goals

of

risk

are

to

ensure

that

the

risk-taking activities are

consistent with the

objectives and risk

tolerance, and that

there is an appropriate

balance between risks and rewards to maximize stockholder value.

The

has

in

place

a

risk

to

monitor,

and

manage

the

risks

assumed

in

conducting its activities. First BanCorp.’s

business is subject to eleven

broad categories of risks: (i) liquidity

risk; (ii) interest rate risk;

(iii) market risk; (iv)

credit risk; (v) operational

risk; (vi) legal and

regulatory risk; (vii)

reputational risk; (viii) model

risk; (ix) capital

risk; (x)

strategic risk;

and (xi)

risk. First

BanCorp. has

adopted policies

and procedures

identify

and manage the risks to which the Corporation is exposed.

Risk Definition

Liquidity Risk

Liquidity risk is

the risk to earnings

or capital arising

from the possibility

that the Corporation

will not have

sufficient cash to

meet

its short-term liquidity

demands, such as

from deposit redemptions

or loan commitments.

See “Liquidity Risk

and Capital Adequacy

”

Interest Rate Risk

rate

risk

is

the

risk

arising

from

adverse

movements

in

rates.

See

“Interest

Rate

Risk

below

for

further details.

Market Risk

Market

risk

is

the

risk

of

loss

in

the

value

of

assets

or

due

to

changes

in

market

movements

in

market

rates or

prices, such

as interest

rates

or equity

prices. The

evaluates market

risk together

with interest

rate risk.

Both changes in market values

and changes in interest rates

are evaluated and forecasted. See

“Interest Rate Risk Management”

below

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

Credit Risk

Credit risk

is the

risk arising

from a

borrower’s or

a counterparty’s

failure to

terms of

a contract

Corporation or

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

risk

is

the

risk

arising

from

problems

with

the

of

or

This

risk

is

a

of

third

party

vendors,

and

It

also

risks

with

the

Corporation’s preparedness

for the occurrence

of an unforeseen event.

This risk is inherent across

all functions, products,

and services

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

Legal,

Regulatory and Compliance Risk

Legal

and

risk is

arising

from

failure

to comply

with laws

or

that can

affect the Corporation’s

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

Reputational Risk

Reputational

risk

is

the

risk

arising

from

any

adverse

effect

on

the

market

value,

or

arising

from

negative public opinion,

whether true or not.

This risk affects the

ability to establish new

relationships or services,

or to

continue servicing existing relationships.

Model Risk

Model risk

is the potential

for adverse

consequences from

decisions based

upon incorrect

or misused

model outputs

and reports

or

an incomplete or

inaccurate model.

The use of

models exposes the

Corporation to some

level of model

risk. Model errors

can

contribute

to

incorrect

valuations

and

lead

to

errors,

inappropriate

or

incorrect

entries.

The Corporation seeks to reduce model risk through rigorous model identification

and validation.

Capital Risk

Capital risk

is the

risk that

may lose

value on

its capital

or have

an inadequate

capital plan,

which would

insufficient capital

resources to meet

minimum regulatory requirements

(the Corporation’s

authority to operate

as a bank is dependent

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

or support its growth and strategic options.

Strategic Risk

risk

is

the

risk

arising

from

adverse

poor

of

or

lack

of

responsiveness

to

changes

in

the

banking

and

environment.

This

risk

is

a

of

the

compatibility

of

the

Corporation’s strategic

goals, the business strategies

developed to achieve

those goals, the resources deployed

against these goals, and

the quality of implementation.

Information Technology

and Cybersecurity Risk

Information technology

risk is

arising from

the loss of

or availability

of information

systems and

risk

of

cyber

or

data

breaches.

It

risks

with

the

use,

ownership,

operation,

involvement,

influence, and adoption of information technology within the Corporation.

Risk Governance

The

the

roles

and

of

the

key