FIRST BANCORP /PR/

Below is

a discussion

about material

risks and

uncertainties that

could impact

businesses, results

of operations,

and

capital

and

could

cause

actual

results

to

differ

from

those

in

any

forward-looking statements. Additional

risks and uncertainties not currently

known to the Corporation or

deemed immaterial may also

materially adversely affect

the Corporation. Thus,

the following should not

be considered a complete

discussion of all of

the risks and

uncertainties the Corporation may face. See the discussion under “Forward-Looking

Statements,” in this Form 10-K.

THE BUSINESS ENVIRONMENT AND OUR INDUSTRY

The

effect

of

changes

in

the

rate

and

levels

on

the

level,

and

of

the

corresponding effects

on the

income, net

interest margin,

loan

originations, deposit attrition, overall results of operations, and liquidity

position.

Net

income

the

between

the

earned

on

assets

and

paid

on

interest-

bearing liabilities.

Because assets

and liabilities

may reprice

at different

times and

by different

amounts, changes

rates can

materially affect

net interest income

and net interest

margin. Prolonged

periods of

lower interest rates

generally compress

margin and reduce profitability.

Higher interest rates can increase

borrowing costs for consumers

and businesses, reduce loan

demand,

and

shift customer

among

deposit products,

which

can negatively

affect

loan

growth,

deposit retention,

funding costs,

and

Competitive pressures

to attract

deposits may

increase reliance

on higher-cost

funding, including

wholesale funding,

which

could

further

compress

net

interest margin.

rates

are

by

factors

beyond

our

control,

general

conditions, inflationary

trends, changes

in government spending

and debt issuances

and monetary policy

actions of governmental

and

regulatory agencies, including the Federal Reserve Board.

basis

risk

may

affect

net

income.

Basis

risk

arises

when

rates

for

with

similar

maturities,

or

the

indices

used

to

price

them,

change

at

times

or

by

magnitudes.

For

example, the interest expense

for liability instruments might

not change by the

same amount as interest income

received from loans

or

investments.

To

the

extent

that

the

rates

on

loans

and

change

at

rates

and

by

amounts,

the

margin between

our variable rate-based

assets and the cost

of the interest-bearing

liabilities might be

compressed and adversely

affect

net interest income.

Also,

changes

in

rates

may

impact

the

ability

to

attract

and

retain

clients,

as

well

as

gain

acceptance

from

current

and

prospective

for

new

and

and

This,

in

turn,

affects

demand

for

new

loan

originations,

the

of the

assets, and

of any

re-shifting between

non-interest-bearing

and interest-

bearing liabilities.

impact the

our fixed-rate

securities. Any

unrealized gains

or losses

from

these portfolios

impact other

comprehensive income,

stockholders’ equity,

and the

tangible common

equity ratio.

Any realized

gains

or losses from these portfolios impact regulatory capital ratios.

Changes in prepayments may adversely affect net interest income.

Net interest income may be affected by

prepayments on MBS. Generally,

when rates rise, prepayments of principal and

interest will

decrease, and

the duration

of MBS

securities will

increase and

vice versa.

Conversely,

when rates

fall, prepayments

of principal

and

interest will

and

the duration

of MBS

will decrease.

Such acceleration

in the

prepayments

of MBS

would

lower yields

on

these

as

the

of

premiums

paid

upon

the

of

these

would

accelerate.

Conversely,

acceleration in

the prepayments

of MBS

would increase

yields on

securities purchased

at a

discount, as

the accretion

of the

would

accelerate.

Also,

net

income

in

future

periods

might

be

by

our

in

callable

because

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

The

in

the

which

could

result

in,

among

other

things,

bank

deposit

runoffs,

constraints, and increased regulatory requirements and costs.

The

closure

and

placement

into receivership

with

the

FDIC of

certain

large

U.S.

banks

with

assets over

$100

billion

in

March

and

May

2023,

and

adverse

other

banks,

in

heightened

levels

of

market

and

consequently

negatively

impacted

confidence

in

the

safety

and

of

institutions.

These

resulted in certain

regional banks experiencing

higher than normal

deposit outflows and

an elevated level

of competition for

deposits in the

market. The impact

of market volatility

from adverse developments

in the banking

industry such as

this one are highly

uncertain and difficult

to predict. In the

aftermath of these

bank failures, the

banking agencies have

increased regulatory requirements

and costs that may impact

capital ratios or the FDIC

deposit insurance premium.

For example, in 2023,

the FDIC issued a final

rule to

impose

a

special

to

recover

certain

losses to

the

Deposit

Fund

arising

from

the closures

of

Silicon Valley

Bank and Signature

Bank. The estimated

losses will be recovered

through quarterly special

assessments collected from

certain

insured

the

Bank,

and

began

during

the

quarter

ended

June

30,

As

of

total estimated

assessment amounted

to $6.3

million, of

which $5.5

million has

been paid.

monitor the

estimated loss

to the

DIF,

which could

affect the

its accrued

Difficult market

and general

economic conditions

have affected

industry in

the past

us

in the future.

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

U.S. and given the degree of interrelation between

Puerto Rico’s economy

of the

U.S., we

are exposed

to downturns

in the

U.S. economy,

including factors

such as

employment levels

in the

real

estate

valuations.

The

of

these

has

us

in

the

past

and

in

the

future

could

affect

the

credit

of

loans,

and

result

in

write-downs

of

asset

values

by

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

as well as major commercial banks and investment banks.

In particular, we may face the following

risks:

●

Our ability

to assess the

creditworthiness of

may be impaired

if the models

and approaches

we use to

select,

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

●

The

models

used

to

losses

in

the

credit

those

under

CECL,

require

difficult,

subjective, and

complex judgments,

including forecasts

of economic

how these

economic predictions

might

impair

the

ability

of

the borrowers

to

repay

their

may

no longer

be

accurately estimated

and

which

may,

in

turn, impact the reliability of the models.

●

Our

ability

to

borrow

from

other

or

to

engage

in

sales

of

loans

to

third

parties

loan

with

GSEs

and

agreements)

on

terms,

or

at

all,

could

be

by

further

in

the

capital

or

credit

markets

or

other

events,

deteriorating

●

Competitive dynamics

in the

industry could

change as

of strategic

growth opportunities

in connection

with current

market conditions.

●

future

of

our

may

our

costs

and

limit

our

ability

to

pursue

opportunities.

●

There may be downward pressure on our stock price.

Any deterioration

of economic

conditions in

and disruptions

in the

financial markets

access capital,

our business,

financial condition,

and results

of operations.

Unfavorable or

uncertain economic

and market

have

been

and

could

cause

in

growth,

or

or

confidence;

on

the

availability or

increases in

the cost

and capital;

increases in inflation

or interest rates;

high unemployment;

natural disasters;

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

the

loan

is

impacted

by

home

values

and

has

historically

been

cyclical,

enjoying periods of strong growth and profitability followed by periods of

shrinking volumes and industry-wide losses. During periods

of

rising

rates,

the

of

many

tends

to

as

the

for

to

refinance their existing mortgage loans are reduced.

Any sustained

period of

increased delinquencies,

foreclosures, or

losses could

our ability

to sell

loans, the

prices

we receive

for loans,

the values

of mortgage

for sale,

or residual

interests in

securitizations, which

affect

our

and

results

of

In

any

decline

in

real

estate

values

would

further

weaken the loan-to-value

ratios and increase

the possibility of

loss if a

borrower defaults. In

such event, we

will be subject

to the risk

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

by third-party credit enhancements.

We operate in a highly

competitive industry and market area.

We

face

competition

in

all

areas

of

our

from

a

variety

of

competitors,

other

banks,

banking

small

loan

automobile

leasing

brokerage

firms

with

retail

credit

unions,

certain

retailers,

fintech

and

digital

platforms.

The

ability

to

compete

depends

on

the

relative

of

its

the

degree

to

which

the

of

its

appeal

to

and

the

extent

to

which

the

meets

clients’

needs

and

The

ability

to

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

personnel, and on its reputation.

The

encounters

intense competition

in attracting

and

retaining

and

in

its consumer

and

lending

activities. The

competes for

other financial

institutions.

originate loans

depends

primarily on the rates and

fees charged and the

service it provides to its borrowers

in making prompt credit

decisions. There can be

no

assurance that

in the

future the

Corporation will

be able

to increase

its deposit

base, originate

loans in

the manner

or on

the terms

on

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

The Corporation’s credit quality

and the value of the portfolio of Puerto Rico government securities have been,

and in the future

may

be,

by

Puerto

and

may

be

by

actions

taken

by

the

Puerto

Rico

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

economic challenges in Puerto Rico.

A

portion

of

our

and

credit

is

concentrated

in

Puerto

Rico,

which

has

faced

prolonged

and

fiscal

challenges.

the

Puerto

Rico

Board

(“PRPB”)

in

its

that

real

gross national product (“GNP”)

grew 0.4% in fiscal year

2025, marking the fifth consecutive

year of positive economic growth,

future

economic prospects remain uncertain. However,

according to the PROMESA oversight board, the fiscal year 2026

budget prepares the

Puerto Rico government for potential further declines in federal funding over

the fiscal year that began on July 1, 2025.

2025,

the Corporation had $297.8

million of direct exposure

to the Puerto Rico government,

its municipalities

and public corporations. As of December 31, 2025, approximately

$211.3 million of the exposure

consisted of loans and obligations of

municipalities in Puerto

Rico that are

supported by assigned

property tax revenues

and for which,

in most cases, the

good faith, credit

and unlimited taxing

power of the applicable

municipality have been

pledged to their

repayment, and $42.2

million consisted of loans

and obligations which

are supported by one

or more specific sources

of municipal revenues. The

municipalities are required

by law to

levy

special

taxes

in

such

amounts

as

are

for

the

payment

of

all

of

their

general

bonds

and

notes. In

addition to

municipalities, the

total direct

exposure also

included $8.7

a loan

extended to

an affiliate

of PREPA,

$32.9

million

in

loans

to

a

public

of

the

Puerto

Rico

and

an

of

the

Puerto

Rico

a

MBS issued

by

the PR

Housing

Finance

Authority

(“PRHFA”),

at

an

cost

of

$2.7

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

of $1.6 million as of December 31, 2025).

Also,

as

of

31,

2025,

the

balance

of

loans

funded

through

conduit

structures

to

support the

of Low-Income

Housing Tax

Credit (“LIHTC”)

combined with

Community Development

Block Grant-

Disaster Recovery (“CDBG-DR”) funding

amounted to $92.4 million. The main

objective of these programs is to

spur development in

new or rehabilitated and affordable

rental housing. PRHFA,

as program subrecipient and conduct

issuer, issues tax-exempt

which

are

by

private

and

are

to

co-underwrite

with

PRHFA

a

mirror

loan

agreement for the specific project

loan to which the Corporation will

serve as ultimate lender,

but where the PRHFA

will be the lender

of

record.

In

as

of

31,

2025,

the

had

$67.1

million

in

to

loans

guaranteed by the PRHFA.

The Corporation operates in various jurisdictions highly dependent

on federal funding programs. On January 27, 2025, the Office

of

and

Budget

(“OMB”)

issued

Memorandum

M-25-13

“Temporary

Pause

of

Agency

Grant,

Loan,

and

Other

Financial Assistance

Programs.” The

Memo directed

every federal

agency to

“temporarily pause all

activities related

to obligation

or

disbursement

of

all

federal

assistance,

and

other

agency

that

may

be

implicated

by

orders,

including, but not

limited to, financial

assistance for foreign

aid, nongovernmental organizations,

DEI, woke gender

ideology,

and the

green

new

deal.”

Lawsuits

challenging

the

pause

were

filed

and

on

January

28,

2025,

the

U.S.

District

Court

for

the

District of

Columbia

enjoined

the

Trump

from

OMB Memorandum

M-25-13

for

under

open

awards.

On

January

29,

2025,

OMB

rescinded

the

Memo,

the

has

to

pursue

agency-by-

agency

reviews

of

federal

and

to

targeted

funding

pauses,

terminations,

or

compliance requirements

its policy

priorities, subject

to applicable

legal constraints. It

remains uncertain

whether the

administration will

issue new

directives, executive

orders, or

guidance affecting

federal grants,

loans, or

other financial

assistance in

the future,

or how

courts may

rule on

ongoing or

future challenges;

any such

action by

the administration

or ruling

by the

courts that limit such grants or financial assistance could have a negative

effect on our business.

Instability

in

delays

in

the

receipt

of

relief

funds

allocated

to

Puerto

Rico

or

any

or

permanent

pause on

any federal

funds,

and the

potential impact

on asset

values resulting

from past

or future

natural disaster

events,

when added

ongoing fiscal

challenges, could

materially adversely

business, financial

condition, liquidity,

results of operations and capital position.

A

in

in

the

U.S.

Virgin

Islands

and

British

Virgin

Islands

could

harm

our

results

of

The Corporation has exposure to the USVI and BVI economies,

which remain susceptible to fiscal challenges, natural disasters,

and

reliance on

federal disaster

relief and

recovery funding.

As of

$138.7 million

and

$100.4

in loans

to USVI

all of

performing as

of that

date. However,

ongoing

fiscal and

challenges in

may

deteriorate

in the

area, which

could

negatively affect the Corporation’s

asset quality, credit performance

and overall financial condition.

We are subject to ESG risks that

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

the

current

U.S.

presidential

and

federal

have,

in

recent

years,

reduced

or

paused

certain

ESG-related

initiatives,

the

SEC’s

in

to

withdraw

its

defense

of

federal

climate-related

disclosures, stakeholder expectations regarding ESG matters

are not uniform. Both opponents and proponents of ESG-related

have increasingly

engaged in legislative,

litigation, and public

advocacy efforts

to advance

their respective pos

itions. As a

result, the

ESG regulatory

and political

landscape has

become more

complex and

less predictable.

Failure to

adapt to or

or

or

stakeholder

and

could

negatively

impact

our

reputation,

ability

to

do

business with certain partners, and our stock price.

For example, we

may be exposed to

negative publicity based

on the identity and

activities of those to

whom we lend or with

whom

we

do

and

on

the

public’s

view

of

the

ESG-related

approach

and

of

our

and

partners.

Such negative

publicity

may

arise

from

adverse

in

traditional media

or

may

spread

rapidly through

social

media

and other digital platforms.

If we were to become

the subject of such

negative publicity,

our relationships and reputation

with existing

and prospective

customers and third

parties with which

we do business

could be damaged,

which could have

an adverse effect

on our

ability to attract and retain

customers and employees and

could have a negative impact on

our business, financial condition

and results

of operations.

we may

face criticism

from

ESG detractors

the scope,

nature, or

perceived

impact of

our

ESG

initiatives or policies,

or in response to

any revisions or enhancements

to these initiatives. We

could also be

subject to adverse

actions

or responses by

governmental actors (such

as anti-ESG legislation

or retaliatory legislative

treatment) or consumers

(through boycotts

or negative publicity campaigns) that could adversely affect our

reputation, results of operations and financial condition.

Our results

of operations

adversely affected

by natural

disasters,

public health

crises, political

crises, negative

global

climate patterns or other catastrophic events.

Natural disasters,

whose nature

and severity

may be

impacted by

climate change,

such as

hurricanes,

floods, extreme

cold events

adverse weather

conditions; public

health crises;

political crises,

such as

terrorist

attacks, war,

labor unrest,

other political

instability,

trade

tariffs

and

sanctions,

the

ongoing

conflict

in

Ukraine,

the

conflict

in

the

Middle

East,

recent

conflicts in South America,

and the possible expansion

of such conflicts in surrounding

areas and potential geopolitical

consequences;

global

climate

patterns,

especially

in

water

stressed

regions;

or

other

catastrophic

events,

such

as

fires

or

other

disasters

occurring at

our locations,

whether occurring

U.S., or

internationally,

could cause

adverse effect

on

the economy and disrupt

our operations. Certain

areas in which our

business is concentrated,

including Puerto Rico

and the USVI, are

susceptible

to

earthquakes,

hurricanes,

and

major

storms.

climate

change

may

both

the

and

severity of extreme

weather conditions and

natural disasters, which

may affect our

business operations, either

in a particular

region or

globally,

as

well

as

the

of

our

customers.

The

is

also

not

able

to

predict

the

or

effects

that

future events or

changes to

the U.S. or

global economy,

financial markets,

or regulatory and

business environment

could have

on our

Climate

change,

and

efforts

to

mitigate

its

effects,

may

affect

the

and

Concerns

the

effects

of

climate

change

have

led,

and

are

to

to

lead,

to

efforts

worldwide

aimed

at

mitigating

climate-related

risks.

In

consumers

and

may

voluntarily

modify their

behavior, business

practices, and

investment decisions in

response to

these concerns. As

a result, the

its

may

be

to

adapt

to

new

laws

and

and

shifts

in

and

preferences

with

climate

change.

These

may

result

in

costs,

asset value

reductions,

and

changes

to

The

impact on

will likely

vary depending

on their

specific attributes,

including reliance

on our

role in

fossil fuel

may face

reductions in

creditworthiness on

the part

of some

customers or

in the

assets securing

loans. The

efforts

to

take these

risks

into

account in

making

other decisions,

increasing

our business

with

climate-responsible

may

not

be

in

protecting

the

from

the

impact

of

new

laws

and

regulations or changes in consumer or business behavior.

Deterioration in collateral values may result in additional losses.

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

underlying our investments.

We

had a

in the

$6.5 billion

as of

Due to

their nature,

entail a

higher credit

risk than

consumer and

loans, since

they are larger

in size,

concentrate

more

risk

in

a

single

and

are

more

sensitive

to

downturns.

in

the

case

of

a

slowdown

in the

market,

it may

be difficult

to dispose

of the

securing

upon any

of the

properties. We

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

deterioration in the quality of loans or because of sales

of

problem

loans,

which

would

likely

accelerate

the

of

losses. Any

such

losses

could

impact

our

overall

financial performance and results of operations.

Deterioration

of

the

value

of

real

estate

securing

our

and

loan

whether

located

in

or elsewhere,

would result

in increased

Whether the

collateral that

underlies our

loans is

located in

Puerto

Rico, the USVI,

the BVI, or the

U.S. mainland, the performance

of our loan portfolio

and the collateral value

backing the transactions

are dependent upon the performance

of, and conditions within, each

specific real estate market. As

of December 31, 2025, $2.8

billion

of our commercial and construction loan portfolio held for investment,

or 21% of the total loan portfolio held for investment, consisted

of commercial mortgage and construction loans, of which $1.9 billion

was in the Puerto Rico region.

We

measure credit

collateral dependent

loans based

on the

of the

collateral, which

obtained from

appraisals, adjusted

for undiscounted

selling costs

as appropriate.

Updated appraisals

are obtained

when we

and

are

updated

thereafter.

In

appraisals

are

also

obtained

for

certain

loans on a spot

basis based on specific

characteristics, such as delinquency

levels, and age of

the appraisal. The appraised

collateral may decrease, or we may

not be able to recover collateral at

its appraised value. A significant decline

in collateral valuations

for

loans

has

and,

in

the

future,

may

require,

in

our

credit

loss

expense

on

loans. Any

such

increase would have an adverse effect on our future financial condition

Labor shortages, challenges

in attracting and retaining

qualified personnel, and

constraints in the supply

chain could adversely

affect our clients’ operations as well as our business and operations.

Widespread labor

shortages across Puerto

Rico, the United

States, the Virgin

Islands, and other

markets have affected

many of

our

clients, contributing

to operational

disruptions,

supply

chain

constraints,

reduced

cash flow,

and

potential difficulties

in

meeting

loan

These

labor

market

pressures

also

affect

the

own

Competition

for

skilled

and

experienced

personnel

remains

intense,

and

rising

wages,

driven

in

part

by

and

heightened

may

increase our cost

structure and contribute

to higher turnover.

As a result, the

Corporation may face prolonged

vacancies, challenges in

attracting and

retaining qualified

employees, and

potential impacts

on service

levels. If these

conditions persist,

they could

and adversely affect the Corporation’s

operations, competitive position, and overall financial results.

The failure of other financial institutions could adversely affect

us.

Our ability to engage in

routine financing transactions could

be adversely affected

by future failures of financial

institutions and the

actions and

commercial soundness

financial institutions.

Financial institutions

are interrelated as

a result of

trading, clearing,

and

other relationships.

We

have

to different

industries

and

and

routinely

execute

with counterparties

services industry,

including brokers

and dealers,

commercial banks,

investment banks,

companies and other

institutional clients. In

certain of these transactions,

we are required to

post collateral to secure

the obligations to

the

counterparties.

In the

event

of

a bankruptcy

or

insolvency

proceeding

involving

one of

such counterparties,

we

may

delays in recovering

the assets posted as

collateral, or we

may incur a

loss to the extent

that the counterparty

was holding collateral

in

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

In addition, many of these transactions

expose us to credit risk in

the event of a default by our

counterparty or client. The credit

risk

may be exacerbated when

the collateral held by us cannot

be realized or is liquidated

at prices not sufficient

to recover the full amount

of the loan

or derivative

exposure due to

us. Any losses

resulting from

our routine funding

transactions may

materially and adversely

affect our financial condition and results of operations.

THE CORPORATION’S

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

prove insufficient and/or costly to replace.

relies

on

the

of

CDs,

and

from

the

FHLB

of

New

York

to

maintain its lending

activities and to replace

certain maturing liabilities.

2025, we had $593.6

million in brokered

CDs outstanding, representing approximately 4% of

our total deposits. Approximately $394.0 million, or 66%

in brokered CDs mature

over the twelve months

ending December 31, 2025, and

the average remaining term to

maturity of the brokered CDs outstanding

as of

was approximately 1.0

year. None

of these brokered

CDs are callable at

option. In addition,

the

$290.0 million

of long-term

FHLB advances

outstanding as

with an

average remaining

term

to maturity of 1.36 years.

Although FirstBank has historically been

able to replace maturing deposits and

advances, we may not be able

to replace these funds

in the future if our financial condition or general market

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

sources, our

results of operations and liquidity would be adversely affected.

Alternate

sources

of

funding

may

carry

higher

costs

than

sources

utilized.

If

we

are

to

rely

heavily

on

more

expensive funding sources, profitability would be adversely affected.

We

may

to

seek

debt

in

the

future

to

achieve

our

if

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

not be on acceptable terms. The availability of additional

financing will depend

on

a

variety

of

such

as

market

the

general

of

credit,

our

credit

ratings

and

our

credit

capacity.

In

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

If additional financing sources are unavailable or are not

available on acceptable terms, our profitability and future prospects could

be adversely affected.

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

funds.

The

access new

non-deposit

funding

by downgrades

in our

credit

ratings. The Corporation’s

liquidity is to a

certain extent contingent upon

its ability to obtain

external sources of funding

to finance its

operations. The

current credit

ratings and

any downgrades

in such

can hinder

new

forms

of

funding

and/or

cause

funding

to

be

more

expensive,

which

could

in

turn

affect

results

of

We depend on

cash dividends from FirstBank to meet our cash obligations.

As a holding company,

dividends from FirstBank, our banking subsidiary,

have provided a substantial portion of our cash flow used

to

service

the

on

our

is

limited

by

law

in

its

ability

to

make

and

other

distributions to us

based on its

earnings and capital

position. A failure

by FirstBank to

generate sufficient

cash flow to

make dividend

payments to us may have a negative impact on our results of operations and financial

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

Although non-performing

assets decreased by

$4.2 million to $114.1

31, 2025, or 4%,

from $118.3

million

as of

31,

2024,

we continue

to

have

a

amount

of

loans.

If

we

are

unable

to

the

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

may be materially and adversely affected.

Our

ACL

may

not

be

to

cover

actual

losses,

and

we

may

be

to

our

ACL,

which

may

adversely affect our capital ratios, financial condition and results of

We are subject, among

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

foreclosures with respect to the loans we originate and

purchase.

We

periodic credit

loss expenses

on loans,

which

lead to

reductions in

our

income from

in order

to

our ACL

at a

level that

our management

deems to

be appropriate

based upon

an assessment

of the

quality

of the

loan and lease portfolios.

Management may fail to

accurately estimate the level of

credit losses or may

have to increase our

expense

on

loans in

the

future as

a

result

of

new

loans,

future

in

loans

beyond

what

was

forecasted,

actions

and

loan

modifications,

changes

in

current

and

and

other

or

for

other

reasons

beyond

our

control.

In

the

bank

review

the

of

our

ACL

on

loans

and

may

require

an

in

the

credit

loss

expense

on

loans

or

the

of

classified loans and loan charge-offs, based on

judgments that differ from those of management.

The level

of the

ACL reflects

estimates based

upon various

assumptions and

judgments as

to specific

credit risks;

evaluation of

industry concentrations;

loan loss

experience; current

quality; present

economic, political

and

unidentified

losses inherent

in the

current

and supportable

forecasts. The

of

the

level

of

the

ACL

on

loans

a

high

degree

of

subjectivity

and

to

make

significant estimates and judgments

regarding current credit risks

and future trends, all

of which may undergo

material changes. If our

prove

to

be

incorrect,

our

ACL

on

loans

may

not

be

to

cover

losses

in

our

loan

and

our

credit

loss

expense on loans could increase substantially.

In addition, any increases in our credit loss expense on

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

adverse effect on our future capital ratios, financial condition

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

In

with

the

sale

and

of

loans,

we

are

to

make

a

variety

of

customary

representations

and

warranties relating

to the

loans sold

or securitized.

Our obligations

to these

representations and

warranties are

for

the

life

of

the

loan,

and

relate

to,

among

other

things,

the

(i)

with

laws

and

regulations;

(ii)

standards;

(iii)

the

of

in

the

loan

documents

and

loan

files;

and

(iv)

the

and

enforceability of the loan.

A loan that

does not comply

with the representations

and warranties made

may take longer

to sell, may impact

our ability to obtain

for

the

loan,

and

may

not

be

saleable

or

may

be

saleable

only

at

a

discount.

If

such a

loan

is

sold

before

we

detect

non-compliance,

we

may

be

obligated

to repurchase

the

loan

and

bear

any

loss directly,

or

we

may

be

obligated

to

indemnify

the purchaser

against

any

loss,

either

of

which

could

reduce

our cash

for

and

that

it has

to

ensure

that

loans

are

originated

in

with

the

market’s

requirements, but certain employees may make mistakes or may deliberately

violate our lending policies.

Our controls and procedures

may fail or be circumvented,

our risk management policies and

procedures may be inadequate

and

operational risks could adversely affect our consolidated

We

may fail to

identify and manage

risks related to a

variety of aspects

of our business, including,

but not limited

to, liquidity risk;

risk; market

risk; credit

risk; operational

risk; legal,

regulatory and

compliance risk;

reputational risk;

model risk;

capital

risk;

risk;

and

and cybersecurity

risk.

We

have

adopted

and

improve

various

systems to

monitor

and

manage risk.

Any improvements

to our

and

may not

be adequate

to identify

and manage

the risks in

our various

businesses. If

our risk

framework is

ineffective,

either

because it fails to

keep pace with changes

in the financial markets

or our businesses or

for other reasons,

we could incur losses,

suffer

reputational damage, or find ourselves out of compliance with applicable

regulatory mandates or expectations.

We may also be

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

cyber-attacks, which could cause delays or

to

functions,

and

market

settlement

In

our

vendors

and

could

suffer

from

such

events.

Should

these

events

affect

us,

or

the

vendors

or

counterparties with

which we

conduct business,

our consolidated

operations could

be negatively

affected.

When we

record

balance

sheet

for

probable

loss

related

to

losses,

we

may

be

unable

to

our

and

any

we

to

cover

losses

may

not

be

to

cover

our

actual

exposure, which

may have

a material

impact on

our consolidated

operations or

for the

periods in

which

we recognize the losses.

Our businesses may be adversely affected by litigation.

We

have, in

the past,

been party

to claims

and legal

actions by

our customers,

or subject

to regulatory

supervisory actions

by the

government on

behalf of

customers, relating

to our

performance of

fiduciary or

contractual responsibilities.

In the

past, we

have also

been

subject

to

class

action

by

our

and

we

have

also

faced

employment

lawsuits

and

other

legal

claims. In

any future

claims or

actions, demands

for substantial

monetary damages

may be

asserted against

us, resulting

in financial

or

an

adverse

effect

on

our

reputation

among

or

on

demand

for

our

and

A

class

action

suit

against

us

in

the

future

could

result

in

costs,

and

the

diversion

of

attention

and

resources.

We

may

be

unable

to

our

to

risk

when

we

record

balance

sheet

reserves for probable loss contingencies.

As a result, reserves we establish to

cover any settlements or judgments may

not be sufficient

to

cover

our

actual

which

has

in

the

past

and

may

occur

in

the

future,

in

a

adverse

impact on our consolidated results of operations or financial condition.

In

the

course

of

our

we

are

also

subject

to

various

and

law

inquiries,

investigations and

subpoenas. These

may be

directed generally

to participants

in the

businesses in

which we

are involved

or may

be

specifically directed

at us. In

regulatory enforcement

matters, claims for

disgorgement, the

imposition of penalties

and the imposition

of other remedial sanctions are possible.

The resolution

of legal

actions or

regulatory matters,

when unfavorable,

has had,

in the

future have,

a material

adverse

effect on our consolidated results of operations for

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

Our businesses may be negatively affected by adverse publicity or

other reputational harm.

Our relationships

with many of

are predicated upon

as a fiduciary

and a service

provider that adheres

to

the

highest

of

ethics,

service

quality

and

compliance.

Adverse

publicity,

operational failures, the failure to meet customer expectations and other

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

FirstBank as our banking

subsidiary, could

materially and adversely affect

our reputation, or our ability

to attract and retain customers

or obtain

funding for

businesses. Preserving

and enhancing

also depends

on maintaining

systems and procedures that

address known risks and regulatory

requirements, as well as our

ability to identify and mitigate

risks

that

arise

due

to

changes

in

our

the

market

places

in

which

we

operate,

the

and

If we

fail to

promptly address

matters that

bear on

our reputation,

may be

materially adversely

and our business may suffer.

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

our operating results.

We

review

for

and

assess

other

assets

whenever

events

or

changes

in

indicate that their

carrying amount may

not be recoverable. If

goodwill or other

intangibles are determined

to be impaired, we

may be

to record

a charge

to earnings.

Impairment risk

factors include

in financial

of the

reporting unit,

declining

market valuation

of the

Corporation or

comparable institutions,

and adverse

economic conditions

impacting expected

cash

flows. During

2025, a

qualitative goodwill

impairment analysis

determined that

it was more

-likely-than-not that

the fair value of our reporting units exceeded their carrying value; therefore,

no goodwill impairment was recorded.

As

of

31,

2025,

our

book

value

was

$38.6

all

at

FirstBank.

Future

impairments

could

reduce

and

affect

ability

to

pay

to

the

subject

to

approval.

While

a

goodwill impairment would not impact our tangible book value or regulatory

capital, it could reduce reported earnings.

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

income by the Bank.

As of

31,

2025,

had

a net

tax asset

of

$149.0

million

(net of

a

of $75.0

of

which

$72.2

million

was

related

to

FirstBank).

Under

the

PR

Tax

Code,

and

its

FirstBank, are treated

as separate taxable

entities and are

not entitled to file

consolidated tax returns.

in order to

obtain a

tax

benefit

from

a

NOL,

a

must

be

able

to

demonstrate

taxable

income

within

the

NOL

carry-forward

period.

Pursuant to

the

PR

Tax

Code,

the

carry-forward

period

for

NOLs

during

taxable

years commencing

after December

31, 2012

is 10

years. The

Corporation assesses

to determine

that is

more-likely-than-

not

to

be

allowances

are

established,

when

to

reduce

tax

assets

to

such

amount.

Due

to

utilized

in determining

the valuation

and

for changes

in facts

and circumstances

in

the

future, the

Corporation may

not be able

to reverse

or may

need to increase

its current

asset valuation allowance.

The

tax

and

the

of

tax

disputes

may

impact

the

earnings and

cash flow,

in the

tax laws

of multiple

jurisdictions can

materially affect

our operations,

tax obligations, and effective tax rate.

is

in

the

tax

rate

and

in

its

tax

positions.

The

for

tax

when

such

tax

do

not

meet

the

thresholds

or

measurement

criteria prescribed by applicable generally accepted accounting principles

in the United States (“GAAP”).

Fluctuations in federal,

state, local, and foreign

taxes or a change

to uncertain tax positions,

including related interest

and penalties,

may impact

effective tax

rate. When particular

tax matters arise,

a number

of years may

elapse before such

matters

are audited

and finally

resolved. In

Rico Department

of Treasury

(“PRTD”),

Revenue Service

(“IRS”),

and

the

tax

authorities

in

the

jurisdictions

in

which

we

operate

may

our

tax

and

we

may

and

provide

for

potential liabilities

arise out

of tax

audits to

that uncertain

tax positions

fail to

standard under

applicable GAAP.

Unfavorable resolution

of any

tax matter

could increase

the effective

tax rate

a

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

the use of cash in the year of resolution.

First BanCorp. is subject

to Puerto Rico income

tax on its income

from all sources. FirstBank

is treated as a

foreign corporation for

U.S. and USVI income

tax purposes and is generally

subject to U.S. and

USVI income tax only

on its income from

sources within the

USVI or

income effectively

of a

trade or

business in

The USVI

jurisdiction

imposes

income

taxes

based

on

the

U.S.

Revenue

Code

under

the

“mirror

system”

by

the

Naval

Service

Appropriations Act of 1922. However,

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

if any.

These

tax

laws

are

complex

and

subject

to

interpretations.

We

must

make

and

interpretations

about

the

application

of

these

complex

tax

laws

when

our

for

income

taxes,

our

tax

assets

and

our valuation

allowance. In

addition, legislative

changes, particularly

tax laws,

impact our

Changes in applicable

tax laws in

Puerto Rico, the

U.S., or other

jurisdictions or tax

authorities’ new interpretations

could result

in

increases in our overall taxes and the Corporation’s

financial condition or results of operations may be adversely impacted.

Our ability to use our NOL carryforwards may be limited.

has U.S.

sourced NOL

carryforwards. Section

382 of

Internal Revenue

Code (“Section

382”)

limits the

utilize U.S.

NOLs for income

tax purposes,

at such

jurisdictions following

an event

of an

change. Generally,

an “ownership

change” occurs

when

certain shareholders

increase their

aggregate ownership

by more

than 50

percentage points

over their

lowest ownership

percentage over

a three-year

testing period.

Upon the

occurrence of

a Section

382 ownership

change, the

use of

NOLs attributable

to the

period prior

to the

ownership change

to limitations

and

only a

portion

of

the

U.S.

and

USVI

NOLs,

as

applicable,

may

be

used

by

the

to

offset

the

annual

U.S.

and

USVI

taxable

income, if any.

In 2017, the Corporation

completed a formal ownership

change analysis within the

meaning of Section 382

covering a

comprehensive period,

and concluded

that an

ownership change,

for U.S.

purposes only,

had occurred

during such

period.

The Section 382

limitation has resulted

in higher U.S.

and USVI income

tax liabilities than

we would have

incurred in the

absence of

such limitation.

It is possible that

the utilization of our

U.S. and USVI NOLs

could be further limited

due to future changes

in our stock ownership,

as

a

result

of

either

sales

of

our

shares

or

issuances

of

new

shares

that

could

separately

or

cumulatively

trigger

an

change

and,

consequently,

a

Section

limitation.

Any

further

Section

may

result

in

greater

U.S.

and

USVI tax

than

we would

incur

in the

absence

of such

a limitation

and

any

increased liabilities

could

our

earnings and cash

flow.

We

may be able to

mitigate the adverse

effects associated with

a Section 382

limitation in the U.S.

to the extent that we could credit any resulting

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

in Puerto Rico. However,

our

ability

to

reduce

our

Puerto

Rico

tax

through

such

a

credit

or

will

depend

on

our

tax

profile

at

each

annual

taxable period, which is dependent on various factors.

The

of

our

NOL

is

subject

to

and

depends

on

future

taxable

income

and

the

applicability

of

current

tax

laws.

we

a

portion

of

our

in

the

Act 65-2025,

future changes

in tax

laws or

sustained losses

at the

or pass-through

entity level,

could

limit

our

ability

to

utilize

these

NOLs,

require

the

reestablishment

of

a

allowance,

or

result

in

the

of

unused

NOLs.

CYBERSECURITY AND TECHNOLOGY

Cyber-attacks,

system

risks

and

data

to

our

systems

and

networks

or

those

of

service

providers could adversely

ability to conduct

business, manage our

exposure to risk

or expand our

business, result in

the

or

misuse

of

confidential

or

proprietary

our

costs

to

and

update

our

and

security systems and infrastructure, and present significant reputational, legal

and regulatory costs.

Our

is

highly

on

the

reliability,

and

of

our

infrastructure

and

data

as

well

as

those

of

our

and

other

third

parties.

Employees,

and

other

third

parties

increasingly

access

our

systems

and

through

or

devices

and

networks

that

are

outside

our

direct

control

and

subject

to

their

own

risks.

Our

relies

on

access

and

the

secure

transmission,

storage

and

retrieval

of

confidential,

proprietary,

and

other

across

our

systems

and

those of third parties.

risks

facing

have

due

to

the

growing

sophistication

and

of

cyber

threats,

as

well

as

our

expansion

of

digital

and

online

These

risks

may

arise

from

deliberate

attacks,

misconduct, human

error, or

system failures.

Cyber incidents,

such as

malware infections,

phishing attacks,

denial-of-service attacks,

ransomware, or other

security breaches, could

result in unauthorized

access to or

loss, misuse, or

destruction of sensitive

damages to systems, disruption of operations, or impairment of customer access

to our services.

While

we

a

CISP

that

continuously

cyber-related

risks

and

ultimately

ensures

protection

for

the

transmission,

and

storage

of

confidential,

proprietary,

and

other

in

our

systems

and

networks,

as

well

as

a

Vendor

Program

to

oversee

third

party

and

vendor

risks,

there

is

no

guarantee

that

we

will

not

be

exposed

to

or

be

affected by a cybersecurity incident.

Cyber threats are rapidly

changing, and future attacks or

breaches could lead to

other security breaches of

the networks, systems, or

devices that

use to

access our

integrated products

and services,

which, in

turn, could

unauthorized disclosure,

release, gathering,

monitoring, misuse,

loss or

destruction of

confidential, proprietary,

information (including

account data

information) or

data security

compromises. As

cyber threats

evolve, we

may be

expend significant

to

modify

or

enhance

our

protective

measures,

investigate,

and

remediate

any

vulnerabilities

or

and

develop

our

capabilities

to

respond

and

recover.

The

scope

and

impact

of

a

cyberattack

may

not

be

clear,

which

could

delay

remediation

efforts

and

limit

our

ability

to

provide

and

accurate

to

customers, third-party vendors, regulators, and the public.

A successful penetration or circumvention of our system security,

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

could cause us serious

negative consequences, including significant

operational, reputational, legal, and

regulatory costs and concerns.

Any of these adverse consequences could adversely impact

our results of operations, liquidity,

and financial condition. In addition, our

insurance policies may be insufficient to cover all losses associated

with a significant cybersecurity incident, may become more

costly,

or may

be unavailable

on economically

reasonable terms

in the future

or at all

Any of

these results could

harm our

growth prospects,

financial condition, business, and reputation.

Our

or

systems

or

infrastructure,

or

those

of

third

parties,

could

fail

or

be

breached.

Any

such

future

incidents could

potentially disrupt

our business

and adversely

impact our

operations, liquidity,

and financial

as well as cause legal or reputational harm.

risk is

in our

business and

extends

beyond

our internal

operations due

to our

reliance

on third-party

service

providers.

Our

depends

on

the

effectiveness,

reliability,

and

of

our

and

infrastructure,

data

online

and

mobile

banking

platforms,

and

network connectivity,

as well

as those

of third

parties that

support

critical business

Failures or

caused

by

human error,

misconduct, system

defects, cyber

incidents, or third-party

performance issues could

expose us to

operational, financial,

and reputational risk.

Our ability

to implement safeguards,

controls, and backup

systems with respect

to third-party

systems is more

limited than for

our

own.

Our systems

or those

of our

may

be damaged,

disrupted,

or rendered

unavailable

as a

result

of a

number

of

factors, including

are wholly

or partially

beyond our

control. In

certain circumstances,

we may

need to

take our

systems

offline.

While backup

systems are

utilized, they

may not

operate at

speed or

capacity as

primary systems

and temporary

or

permanent loss of data could occur.

We

frequently

update our

systems to

support our

business needs,

growth, and

regulatory compliance,

and to

respond to

evolving

threats. These

efforts

may

involve

costs and

risks

with

system

implementation,

and

integration,

and

may

result

in

interruptions.

failures

or

could

impact

our

and

as

well

as

cause

harm.

In

our

may

be

insufficient to fully cover losses resulting from a major interruption.

We

must respond

to

rapid

technological

changes,

and these

changes

may

be

more difficult

or

expensive

than

anticipated.

We

may also be negatively

affected if we fail

to identify and address

operational risks associated

with the introduction of

or changes to

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

displace traditional financial services.

Like

most

depends

on

to

deliver

its

and

other

and

to

otherwise conduct

business. To

remain technologically

competitive and

operationally efficient,

FirstBank invests

in system

upgrades,

new technological

solutions, and

other technological

initiatives. Competitors

may introduce

new products,

services, or

platforms that

leverage emerging technologies or

new industry standards. If we are

unable to timely adopt, develop, or

integrate new technologies, or

if our existing systems and

offerings become obsolete, we

may lose current and future customers,

which could have a material adverse

effect on our business, financial condition

and results of operations. The financial services industry

is changing rapidly and, in order to

remain

competitive,

we

must

to

enhance

and

improve

the

functionality

and

of

our

and

technologies. These changes may be more difficult or expensive

to implement than we anticipate.

We

may

not

be

able

to

new

technology-driven

and

or

be

successful

in

these

products and

services to our

customers. Failure to

effectively respond

to technological change

services industry

could

have a material adverse effect on our business, financial condition,

Advances

in

artificial

intelligence,

digital

platforms,

and

automated

advisory

tools

are

enabling

non-bank

competitors

to

offer

services traditionally provided by banks, including personal financial

guidance, payments, and wealth management, often at lower cost

and

with

greater

speed

or

convenience.

distributed

ledger

and

blockchain-based

technologies

may

enhance

efficiency

and

but

over

time

could

reduce

the

role

of

banks

as

secure

deposit-keepers

and

intermediaries.

The

adoption of these and other emerging technologies could materially

and adversely affect our business and results of operations.

The Corporation is subject

to stringent and changing

privacy laws, regulations,

and standards as well

as policies, contracts, and

other

related

to

data

privacy

and

security.

Our

failure

to

comply

with

privacy

as

well as

other

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

State,

federal,

and

foreign

governments

are

increasingly

enacting

laws

and

governing

the

use,

retention,

sharing, transfer,

and security

of personally

identifiable information

and data.

A variety

of federal,

state, local,

and foreign

orders,

rules,

codes,

and

certain

privacy,

data

protection,

protection,

and

the

of

and

other

data

apply

to

our

State

laws

are

changing

rapidly,

and

new

legislation

or

enacted

in

a

number

of

other

states

imposes,

or

has

the

to

impose,

additional obligations

on companies

that process

confidential, sensitive

and personal

information, and

will continue

to shape

the data

privacy

nationally.

The U.S.

federal

is also

focused

on privacy

matters. Any

failure

by us

or our

partners

to

comply

with

laws,

rules,

and

could

result

in

investigations

or

actions

against

us

by

entities,

private

claims

and

fines,

or

other

Such

outcomes

could

our

expose

us

to

liabilities, and harm

our reputation,

and have

a material adverse

our business. While

we aim to

applicable data

protection

laws

and

in

all

respects,

there

is

no

that

we

will

not

be

subject

to

claims

that

we

have

violated such

obligations, will

be able

to successfully

defend against

such claims,

or will

not be

significant fines

and

in

the

event

of

non-compliance.

to

the

extent

state-level

laws

are

introduced

in

the

U.S.

with

inconsistent or

conflicting

standards and

there is

no federal

law to

preempt such

laws, compliance

with such

laws could

be difficult

and costly, or impossible, to

achieve, and we could be subject to fines and penalties in the event of non

-compliance.

In

the

U.S.

for

remains

subject

to

change.

Legislative,

or

administrative actions may result

in amendments to existing

banking and consumer protection

laws, modifications to prior

rulemaking

or

or

changes

to

the

structure,

authority,

or

of

federal

The

scope,

timing,

and

impact of any such changes are uncertain.

RISK RELATING

TO THE REGULATION

OF OUR INDUSTRY

We are subject to certain regulatory

restrictions that may adversely affect our operations.

We

and regulation

by the

Federal Reserve

Board and

We

are a

company and

a

company under

Act of

1956, as

amended. The

Bank is

also subject

and

regulation by OCIF.

Under

federal

law,

holding

are

to

engage

in

a

broader

range

of

“financial”

than

those

to

bank

holding

that

are

not

holding

companies.

A

holding

company

that

ceases

to

meet

certain

is

subject

to

a

variety

of

restrictions,

on

the

the

prohibition

from

undertaking

new activities

or acquiring

shares or

control of

other companies.

If we

fail to

the requirements

from our

regulators,

we

may

become

subject

to

action

and

other

adverse

actions

that

might

have

a

and

adverse

effect on our operations.

insures deposits

at FDIC-insured

institutions up

limits (currently,

$250,000 per

depositor at

same

depository institution). The

FDIC charges insured depository

institutions premiums to maintain

the DIF.

In the event of a bank

failure,

takes control

of a

failed bank

and, if

pays all

insured deposits

up to

the statutory

deposit insurance

limits using

the resources of

the DIF.

The FDIC is required

by law to

maintain adequate funding

of the DIF,

and the FDIC

may increase premium

to

such

funding.

The

Dodd-Frank

Wall

Street

Reform

and

Protection

Act

(the

“Dodd-Frank

Act”)

the

FDIC

to

the

DIF’s

against

future

losses,

which

will

require

with

assets

greater

than

$10

billion, such as FirstBank, to bear an increased responsibility for funding

the prescribed reserve to support the DIF.

may further

increase FirstBank’s

premiums or

impose additional

assessments or

prepayment requirements

in the

future.

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

the FDIC free to set this cap going forward.

Our

are

subject

to

by

the

Federal

Reserve

Board

and

the

FDIC.

Any

deficiencies

in

our

may

be

into

our

supervisory

ratings,

which

can

affect

our

ability

to

make

acquisitions

or

perform other actions.

Our compensation

practices are

by the

Federal

Reserve

Board

and

As discussed

in Part

I, Item

1,

“Business” of this

Form 10-K,

is currently subject

to the interagency

guidance governing

the incentive compensation

activities of regulated

banks and bank

holding companies,

and other financial

regulators have also

implemented regulations

Our

failure

to

satisfy

these

and

could

expose

us

to

adverse

criticism,

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

We

are

subject

to

capital

and,

if

we

fail

to

meet

these

our

and

condition will be adversely affected.

We

are

subject

to

stringent

capital requirements.

the

met

well-capitalized

capital

ratios as

and we

expect both

companies will

exceed the

minimum risk-based

and leverage

capital

ratio requirements for

well-capitalized status under

the current capital rules,

we cannot assure that

we will remain at such

levels. If we

fail

to

meet

these

minimum

capital

and

other

our

and

will

be

materially and

adversely affected.

If we fail

to maintain certain

capital levels or

are deemed not

well managed under

regulatory exam

procedures, or if we

experience certain regulatory violations,

our status as a financial

holding company,

and our ability to offer

certain

financial products will be compromised and our financial condition

and results of operations could be adversely affected.

Monetary

and

of

the

Federal

Reserve

Board

could

affect

our

and

In

to

general

our

and

growth

are

by

the

and

regulatory actions of

Board. An important

function of the

Federal Reserve Board

is to regulate

the money supply

and

credit

The

Federal

Reserve

Board

implements

policy

through

various

tools,

open

market

adjustments to the federal funds

and discount rates, and changes

in reserve requirements for bank

deposits. These instruments are

used

in

varying

combinations

to

influence

overall

growth

and

the

of

credit,

bank

loans,

and

Their use also affects interest rates charged on

loans or paid on deposits.

Changes

in

and

actions

of

the

Federal

Reserve

Board

have

had,

and

may

to

have,

a

impact

on the

operating results

banks.

The effects

of such

policies upon

our

business, financial

and results of operations have been adverse in the past and may be adverse in

the future.

We

to numerous

laws designed

to protect

consumers, including

the Community

Reinvestment Act

and fair

lending

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

The

Reinvestment

Act,

the

Equal

Credit

Opportunity

Act,

the

Fair

Housing

Act,

and

other

fair

lending

laws

and

regulations impose

nondiscriminatory lending

requirements on financial

institutions. These laws

are enforced

by the U.S.

of Justice and

other federal agencies

A successful regulatory

challenge related to

our compliance with

these requirements could

result

in

a

wide

variety

of

sanctions,

damages

and

civil

money

injunctive

relief,

and

on

mergers

and

acquisitions,

expansion,

or

entry

into

new

lines.

Private

parties

may

also

have

the

ability

to

an

institution’s

under

fair

lending

laws

in

private

class

action

litigation.

Such

actions

could

have

a

adverse

effect

on

our

business, financial condition, and results of operations.

We

face

a

risk

of

noncompliance

and

action

related

to

the

Bank

Secrecy

Act

and

other

statutes and regulations.

Secrecy Act,

the USA PATRIOT

Act, and

related regulations

require us

an effective

anti-money laundering

program

and

file

suspicious

and

currency

reports

as

among

other

duties.

agencies,

the

Crimes

Network,

federal

banking

regulators,

and

the

U.S.

of

Justice,

have

significantly increased coordination and enforcement activity

in this area. We are

also subject to increased scrutiny of compliance with

economic and trade

sanctions administered by

OFAC. If

our AML, sanctions, or

related compliance programs

are deemed inadequate,

we could be

subject to liability,

including fines

and regulatory

actions, which

may include restrictions

on our

ability to pay

and the

necessity to

obtain regulatory

approvals to

proceed with

certain aspects

of our

business plan,

including our

acquisition plans.

Any such outcome could materially and adversely affect our business,

financial condition, and results of operations.