FIRST BANCORP /PR/ (FBP)

ITEM

7.

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

FINANCIAL

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

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

of

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-GAAP

financial measures are

presented, reconciliations

of non-GAAP financial

measures to the

most comparable GAAP

financial measures,

and references to non-GAAP financial measures reconciliations presented

in other sections.

The detailed financial discussion

that follows focuses on

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

discussion

and

analysis

of

our

financial

condition

and

results

of

operations,

we

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

of

the

safe

harbor

provisions

of

Section

27A

of

the

Securities

Act

and

Section 21E

of the

Exchange Act.

Forward-looking statements

are not

historical facts

or statements

of current

conditions, but

instead

represent only our beliefs

regarding future events, many

of which, by their nature,

are inherently uncertain and

outside our control. By

identifying

these statements

for you

in this

manner,

we are

alerting you

to the

possibility that

our actual

results, financial

condition,

liquidity and capital actions may differ materially

from the anticipated results, financial condition, liquidity

and capital actions in these

forward-looking

statements. Important

factors

that could

cause our

results, financial

condition, liquidity

and capital

actions to

differ

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

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

EXECUTIVE SUMMARY

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Significant Events

Economy and Market Update

For

the

year

ended

December

31,

2024,

the

Corporation

was

able

to

achieve

year-over-year

growth

on

its

loan

portfolio

of

approximately

$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

continued

to

make

progress

on

stabilizing

inflation

with

Consumer

Price

Index

(“CPI”)

reaching 2.9%

year-over-year,

which is

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

economic

growth

and

inflation

stabilizing,

the

market

expects

the

FED

to

continue

lowering interest rates but at a slower pace during 2025.

As

we

look

ahead

into

2025,

assuming

no

meaningful

changes

in

deposit

balances,

the

Corporation

sees

opportunities

for

net

interest

income

and

margin

expansion

as

cash

flows

from

the

investment

portfolio

will

be

redeployed

into

loans,

higher

yielding

securities

or

used

to

pay

down

higher-cost

borrowings.

Credit

quality

continues

to

remain

stable

in

the

residential

mortgage

and

commercial

loan

portfolios

while

the

consumer

loan

portfolios

have

shown

increases

in

delinquency

levels

which

are

expected

to

stabilize

during

the

second

half

of

2025.

The

Corporation

expects

its

reserve

coverage

and

capital

levels

will

allow

it

to

continue

executing its capital plans and continue its strategic technology and branch

expansion projects.

42

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

repurchases

of

common

stock,

$100.0

million

in

the

redemption

of

outstanding

trust-preferred

securities (“TruPS”)

issued by

FBP Statutory

Trust II,

and approximately

$106.0 million

in common

stock dividends

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.

On January

21, 2025,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.18

per common

share, which

represents

an

increase

of

$0.02

per

common

share,

or

a

13%

increase,

compared

to

its

most

recent

quarterly

dividend

paid

in

December 2024.

The dividend

is payable

on March

7, 2025

to shareholders

of record

at the

close of

business on

February 21,

2025.

The increased quarterly dividend level equates to an annualized dividend

of $0.72 per common share.

Legislative and Regulatory

A

comprehensive

discussion

of

legislative

and

regulatory

matters

affecting

us

can

be

found

in

Part

I,

Item

1,

“Business

–

Supervision and Regulation” of this Form 10-K.

43

Overview of Results of Operations

The

Corporation’s

results

of operations

depend

primarily

on

its

net

interest

income,

which

is

the

difference

between

the

interest

income

earned

on

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

on

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

is

affected

by

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

of

interest-earning

assets,

and

interest-bearing

liabilities; and

(iii) the

repricing

characteristics of

these assets

and liabilities.

The Corporation

’s

results of

operations also

depend on

the

provision

for

credit

losses,

non-interest

expenses

(such

as

personnel,

occupancy,

professional

service

fees,

the

FDIC

insurance

premium,

and

other

costs),

non-interest

income

(mainly

service

charges

and

fees

on

deposits,

cards

and

processing

income,

and

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

taxes.

The

Corporation

had

a

net

income

of

$298.7

million

($1.81

per

diluted

common

share),

for

the

year

ended

December

31,

2024,

compared

to

$302.9

million

($1.71

per

diluted

common

share),

for

the

year

ended

December

31,

2023.

Other

relevant

selected

financial indicators for the periods presented are included below:

Year

Ended December 31,

2024

2023

2022

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

the Corporation’s

GAAP financial

results for

the year

ended December

31, 2024,

compared to

the year

ended

December 31, 2023, include the following:

●

Net interest

income for

the year

ended December

31, 2024

increased to

$807.5 million,

compared to

$797.1 million

for the

year ended

December 31,

2023, driven

by loan

growth, partially

offset by

an increase

in interest expense

due to

higher rates

on interest-bearing

deposits given

the higher

interest rate

environment and

the change

in deposit

mix reflecting

a continued

migration

from

non-interest-bearing

and

other

low-cost

deposits

to

higher-cost

deposits.

See

“Result

of

Operations

–

Net

Interest Income”

below for additional information.

●

The provision

for credit

losses on

loans, finance

leases, unfunded

loan commitments

and debt

securities for

the year

ended

December 31,

2024 was $59.9

million, compared

to $60.9 million

for the year

ended December

31, 2023. The

results reflect

a decrease

in provision

for the

commercial and

residential mortgage

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.

Net charge-offs

totaled $80.8

million for

the year

ended December

31, 2024,

or 0.65%

of average

loans, compared

to $67.4

million, or

0.58% of

average loans,

for the

year ended

December 31,

2023, driven

by a

$22.6 million

increase in

consumer

loans

and

finance

leases

net

charge-offs,

which

is

net

of

a

$10.0

million

recovery

associated

with

the

bulk

sale

of

fully-

charged

off loans,

partially offset

by a

$5.0 million

recovery recorded

during 2024

on a

commercial

and industrial

(“C&I”)

loan

in

the

Puerto

Rico

region

and

a

$6.0

million

net

charge-off

recorded

during

2023

on

a

C&I

participated

loan

in

the

Florida

region

in

the

power

generation

industry.

See

“Results

of

Operations

–

Provision

for

Credit

Losses”

and

“Risk

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

non-performing assets and related ratios.

●

Non-interest income

for the year

ended December

31, 2024 decreased

to $130.7

million, compared

to $132.7 million

for the

year

ended

December

31,

2023,

mainly

due

to

the

effect

during

2023

of

a

$3.0

million

gain

associated

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

income and

$2.1 million

in revenues

from mortgage

banking activities

during 2024.

See “Result of Operations – Non-Interest Income”

below for additional information.

44

●

Non-interest expenses for

the year ended December 31,

2024 increased to $487.1 million,

compared to $471.4 million

for the

year ended December

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

year ended

December 31,

2024 and 2023

include a $1.1

million

and $6.3 million FDIC special

assessment expense,

respectively.

See “Results of Operations

– Non-Interest Expenses” below

for additional information.

●

Income tax

expense decreased

to $92.5

million for

the year

ended December

31, 2024,

compared to

$94.6 million

for 2023,

driven by lower pre-tax

income. See “Income Taxes”

below and Note 20

– “Income Taxes

”

included in Part II,

ITEM

7.

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

FINANCIAL

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

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

of

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-GAAP

financial measures are

presented, reconciliations

of non-GAAP financial

measures to the

most comparable GAAP

financial measures,

and references to non-GAAP financial measures reconciliations presented

in other sections.

The detailed financial discussion

that follows focuses on

2023 results compared to

2022. For a discussion of

2022 results compared

to 2021, see Part I, Item 7,

“Management’s Discussion

and Analysis of Financial Condition

and Results of Operations” included

in the

Corporation’s Annual Report

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

28, 2023.

In

this

discussion

and

analysis

of

our

financial

condition

and

results

of

operations,

we

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

of

the

safe

harbor

provisions

of

Section

27A

of

the

Securities

Act

and

Section 21E

of the

Exchange Act.

Forward-looking statements

are not

historical facts

or statements

of current

conditions, but

instead

represent only our beliefs

regarding future events, many

of which, by their nature,

are inherently uncertain and

outside our control. By

identifying

these statements

for you

in this

manner,

we are

alerting you

to the

possibility that

our actual

results, financial

condition,

liquidity and capital actions may differ materially

from the anticipated results, financial condition, liquidity

and capital actions in these

forward-looking

statements. Important

factors

that could

cause our

results, financial

condition, liquidity

and capital

actions to

differ

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

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

EXECUTIVE SUMMARY

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Significant Events

Economy and Market Volatility

The

Federal

Reserve

Board

has

implemented

monetary

policies

designed

to

curb

inflation.

On

January

11,

2024

the

Federal

Reserve Board published

the core Personal

Consumption Expenditures Price

Index over the

last 12 months,

which showed that

the all

items

index

increased

2.9

percent

before

seasonal

adjustment.

Other

recent

indicators

suggest

that

economic

activity

has

been

expanding. For 2023 as

a whole, GDP has expanded

at 3.1%. Although still strong,

the labor market remains

tight as payroll job

gains

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

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

Following

its

January

31,

2024

meeting,

the

Federal

Reserve

Board

announced

its

decision

to

leave

the

federal

funds

rate

unchanged,

at a

target

rate of

5.25% to

5.50%. The

Federal Reserve

Board commentary

suggested

that its

policy rate

is likely

at its

peak and

that, if

the economy

continues to

evolve as

expected, it

will likely

be dialing

back policy

restraint at

some point

this year.

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

the time of the March 2024 meeting.

The Corporation closed an unprecedented and challenging year for

the banking industry with strong financial performance and solid

loan

growth.

Core

deposits,

other

than

government

and

brokered,

contracted

due

to

the

use

of

excess

liquidity

across

all

market

segments. Although

the Corporation

is seeing

an expected

correction

in the

credit cycle

of the

consumer lending

business driven

by

lower

levels

of

excess

liquidity

and

inflationary

pressures,

the

Corporation

expects

its

ample

reserve

coverage

levels

and

risk

management framework to withstand the impact of any additional credit

deterioration during 2024.

For 2024, the Corporation expects a reduction in the overall

average cost of its deposits as interest rates start to decrease

but expects

to continue to

be impacted by the

shift from non-interest-bearing

deposits to interest-bearing

deposits, though at

a lower degree. Also,

the

Corporation

expects

some

reductions

in

deposit

balances

due

to

the

customers’

use

of

their

excess

liquidity,

which

could

be

replaced with

wholesale funding

sources. Assuming

no meaningful

changes to

deposit balances,

the Corporation

expects net

interest

income

to

improve

in

2024

since

approximately

$1

billion

in

expected

cash

inflows

from

the

repayments

and

maturities

of

the

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

loan growth or be reinvested in higher yielding securities.

42

The Corporation remains

confident that the economic

prospects of Puerto Rico,

its primary market,

driven by a strong

labor market

and

an

unprecedented

level

of

federal

support,

will

support

the

Corporation

in

continuing

to

have

a

strong

financial

performance,

sustainable levels of loan growth, and any additional credit deterioration

contained.

Return of Capital to Shareholders and Dividend

Payment Increase

In 2023, the

Corporation returned approximately

$300 million, or close

to 100% of 2023

earnings, to its shareholders

through $200

million in repurchases of common stock and the payment of approximately

$100 million in common stock dividends.

For

the

year

ended

December

31,

2023,

the

Corporation

repurchased

14.1

million

shares of

its common

stock

for

a

total cost

of

$200

million.

Of

this

total,

$75

million

of

common

stock,

representing

5.1

million

common

shares

at

a

weighted-average

price

of

$14.76,

were

repurchased

under

the

$225

million

stock

repurchase

program

announced

on

July

24,

2023

(the

“2023

Repurchase

Plan”). As

of February

21, 2024,

the Corporation has

repurchased approximately

7.1 million

shares of common

stock totaling

$107.9

million

through open

market purchases

under the

2023 Repurchase

Plan. With

the additional

purchases, the

Corporation has

$117.1

million

remaining

for

share

repurchases

under

the

2023

Repurchase

Plan,

which

it

expects

to

execute

through

the

end

of

the

third

quarter of 2024.

On February

8, 2024,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.16

per common

share, which

represents

an

increase

of

$0.02

per

common

share,

or

a

14%

increase,

compared

to

its

most

recent

quarterly

dividend

paid

in

December 2023.

The dividend

is payable

on March

8, 2024,

to shareholders

of record

at the close

of business

on February

23, 2024.

The increased quarterly dividend level equates to an annualized dividend

of $0.64 per common share.

Legislative and Regulatory

A

comprehensive

discussion

of

legislative

and

regulatory

matters

affecting

us

can

be

found

in

Part

I,

Item

1,

“Business

–

Supervision and Regulation” of this Form 10-K.

43

Overview of Results of Operations

The

Corporation’s

results

of operations

depend

primarily

on

its

net

interest

income,

which

is

the

difference

between

the

interest

income

earned

on

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

on

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

is

affected

by

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

of

interest-earning

assets,

and

interest-bearing

liabilities; and

(iii) the

repricing

characteristics of

these assets

and liabilities.

The Corporation

’s

results of

operations also

depend on

the

provision

for

credit

losses,

non-interest

expenses

(such

as

personnel,

occupancy,

professional

service

fees,

the

FDIC

insurance

premium,

and

other

costs),

non-interest

income

(mainly

service

charges

and

fees

on

deposits,

cards

and

processing

income,

and

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

taxes.

The

Corporation

had

net

income

of

$302.9

million,

or

$1.71

per

diluted

common

share,

for

the

year

ended

December

31,

2023,

compared

to

$305.1

million,

or

$1.59

per

diluted

common

share,

for

the

year

ended

December

31,

2022.

Other

relevant

selected

financial indicators for the periods presented are included below:

Year

Ended December 31,

2023

2022

2021

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.62

%

1.57

%

1.38

%

Return on Average

Common Equity

(3)

21.86

18.66

12.56

Efficiency Ratio

(4)

50.70

48.25

57.45

(1)

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

financial performance and whether it is using its assets efficiently.

(2)

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

and is calculated by dividing net income by its average total

assets.

(3)

Measures the Corporation’s performance

based on its average common stockholders’ equity and is calculated

by dividing net income by its average total common stockholders’

equity.

(4)

Measures how much the Corporation incurred to generate a

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

by total revenue.

The key

drivers of

the Corporation’s

GAAP financial

results for

the year

ended December

31, 2023,

compared to

the year

ended

December 31, 2022, include the following:

●

Net interest

income for

the year

ended December

31, 2023

increased to

$797.1 million,

compared to

$795.3 million

for the

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

reflects a 10 basis points increase in net interest margin to

4.22%,

which

was mainly

associated

with the

effect

of both

a higher

interest rate

environment,

driving

an increase

in loan

and investment security yields, and the growth

in the consumer loan portfolio, partially offset

by higher rates paid on deposits

coupled

with

a

change

in

the

mix

of

deposit

and

borrowing

composition.

See

"Net

Interest

Income"

below

for

additional

information.

●

The provision

for credit

losses on

loans, finance

leases, unfunded

loan commitments

and debt

securities for

the year

ended

December 31,

2023 was

$60.9 million,

compared to

$27.7 million

for the

year ended

December 31,

2022. The

increase was

mainly driven by a

combination of loan growth,

higher delinquency and historical

charge-off levels

in the consumer loan

and

finance

lease

portfolios,

and

the

effect

in

2022

of

reductions

in

qualitative

reserves

associated

with

reduced

uncertainty

around the

economic impact

of the COVID-19

pandemic, particularly

on loans in

the hotel, transportation

and entertainment

industries.

Net charge-offs

totaled $67.4

million for

the year

ended December

31, 2023,

or 0.58%

of average

loans,

compared to

$34.2

million,

or

0.31%

of

average

loans,

for

the

year

ended

December

31,

2022,

mainly

driven

by

a

$29.1

million

increase

in

consumer loans

and finance leases

net charge-offs.

See “Provision for

Credit Losses” and

“Risk Management”

below for the

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

assets and related ratios.

●

The Corporation

recorded non-interest income

of $132.7 million

for the year

ended December 31,

2023, compared to

$123.1

million for

the year

ended December

31, 2022.

The increase

of $9.6

million in

non-interest income

was mainly

driven by

a

$3.6

million

gain

recognized

from

a

legal

settlement,

a

$3.5

million

increase

in

card

and

processing

income,

and

a

$3.0

million

gain

related

to the

sale of

banking

premise

in the

Florida

region,

partially

offset

by lower

revenues from

mortgage

banking activities. See “Non-Interest Income”

below for additional information.

44

●

The

Corporation

recorded

non-interest

expenses

of

$471.4

million

for

the

year

ended

December

31,

2023,

compared

to

$443.1 million for

the year ended

December 31, 2022.

The increase of

$28.3 million in

non-interest expenses

mainly reflects

a $16.8

million increase

in employees’

compensation and

benefits expenses,

mostly driven

by annual

salary merit

increases

and

minimum

wage adjustments,

and

a FDIC

special assessment

expense

of $6.3

million. The

efficiency

ratio for

the year

ended

December

31,

2023

was

50.70%,

compared

to

48.25%

for

the

year

ended

December

31,

2022.

See

“Non-Interest

Expenses” below for additional information.

●

Income tax

expense decreased to

$94.6 million

for the year

ended December

31, 2023, compared

to $142.5 million

for 2022

driven by a

lower effective

tax rate and

lower pre-tax income.

The Corporation’s

annual effective

tax rate, excluding

entities

with pre-tax

losses from which

a tax benefit

cannot be

recognized and

discrete items, decreased

to 23.5%

for the year

ended

December 31,

2023, compared

to 31.2%

for 2022. See

“Income Taxes”

below and

Note 22 –

“Income Taxes

”

to the audited

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

10-K for additional information.

●

As of

December 31,

2023, total

assets were

approximately $18.9

billion, an

increase of

$275.1 million

from December

31,

2022,

primarily reflecting

a $627.7

million increase

in the

total loan

portfolio before

the ACL and

a $182.7

million increase

in

cash

and

cash

equivalents,

partially

offset

by

a

$452.4

million

decrease

in

total

investment

securities

net

of

a

$165.4

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

securities.

●

As of December

31, 2023,

total liabilities were

$17.4 billion,

an increase of

$103.0 million

from December

31, 2022, driven

by

a

$412.5

million

increase

in

total

deposits,

which

includes

a

$677.5

million

increase

in

brokered

certificates

of

deposit

(“CDs”), partially offset

by a $272.2 million decrease

in borrowings,

primarily in short-term borrowings.

See “Liquidity Risk

Management”

below for additional information about the Corporation’s

funding sources and strategy.

●

The Bank’s

primary sources of funding

are consumer and commercial

core deposits, which exclude

government deposits and

brokered

CDs.

As

of

December

31,

2023,

these

core

deposits,

amounting

to

$12.6

billion,

funded

66.64%

of

total

assets.

Excluding

fully

collateralized

government

deposits,

estimated

uninsured

deposits amounted

to $4.4

billion

as of

December

31, 2023. In

addition to approximately

$2.8 billion in

cash and free

high-quality liquid

assets, the Bank

maintains borrowing

capacity

at

the

Federal

Home

Loan

Bank

(“FHLB”)

and

the

Federal

Reserve

Bank

of

New

York

’s

(the

“FED”)

Discount

Window.

As of

December 31,

2023,

the Corporation

had approximately

$1.5 billion

available for

funding under

the FED’s

Discount Window and

$924.2 million available for

additional borrowing capacity on FHLB

lines of credit based on

collateral

pledged

at

these

entities.

On

a

combined

basis,

as

of

December

31,

2023,

the

Corporation

had

$5.2

billion,

or

118%

of

estimated

uninsured

deposits,

available

to

meet

liquidity

needs.

See

“Liquidity

Risk

Management”

below

for

additional

information about the Corporation’s

funding sources and strategy.

●

As of

December 31,

2023, the

Corporation’s

total stockholders’

equity was

$1.5 billion,

an increase

of $172.1

million from

December 31, 2022, mainly

driven by a $165.4 million increase

in the fair value of

available-for-sale debt securities recorded

as

part

of

accumulated

other

comprehensive

loss

and

net

income

generated

in

2023,

partially

offset

by

$200.0

million

in

repurchases

of

common

stock

and

$99.6

million

in

dividends

declared

in

2023.

The

Corporation’s

CET1

capital,

tier

1

capital, total capital,

and leverage ratios

were 16.10%, 16.10%,

18.57%, and 10.78%,

respectively,

as of December

31, 2023,

compared

to

CET1

capital,

tier

1

capital,

total

capital,

and

leverage

ratios

of

16.53%,

16.53%,

19.21%,

and

10.70%,

respectively, as of

December 31, 2022.

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

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments, decreased

by $230.8

million to

$5.1 billion

for the

year ended

December 31,

2023. See

“Financial Condition

and Operating Data Analysis” below for additional information.

●

Total

non-performing

assets were

$125.9 million

as of

December 31,

2023, a

decrease of

$3.3 million,

from December

31,

2022,

primarily

related

to

a

decrease

of

$10.6

million

in

nonaccrual

residential

mortgage

loans,

partially

offset

by

a

$7.6

million increase in nonaccrual consumer

loans, mainly in the auto loan and

finance lease portfolios.

See “Risk Management –

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

●

Adversely

classified

commercial

and

construction

loans

decreased

by

$26.1

million

to

$67.5

million

as

of

December

31,

2023,

compared to

December 31,

2022, mainly

driven by

the payoff

of a

$24.3 million

commercial

and industrial

(“C&I”)

participated loan in the Florida region.

45

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation

has included

in this

Form 10-K

the following

financial measures

that are

not recognized

under GAAP,

which are

referred to as non-GAAP financial measures:

Net Interest Income,

Interest Rate Spread,

and Net Interest Margin, Excluding

Valuations

,

and on a Tax

-Equivalent Basis

Net interest

income, interest

rate spread,

and net

interest margin,

excluding the

changes in

the fair

value of

derivative instruments

and on

a tax-equivalent

basis, are

reported in

order to

provide to

investors additional

information about

the Corporation’s

net interest

income

that management

uses and

believes should

facilitate comparability and

analysis of

the periods

presented.

The changes

in the

fair value

of derivative

instruments have

no effect

on interest

due or

interest earned

on interest-bearing

liabilities or

interest-earning

assets, respectively.

The tax-equivalent

adjustment to

net interest

income recognizes

the income

tax savings

when comparing

taxable

and

tax-exempt

assets

and

assumes

a

marginal

income

tax

rate.

Income

from

tax-exempt

earning

assets

is

increased

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

the banking

industry

to

present

net

interest

income,

interest

rate

spread,

and

net

interest

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 “Result of Operations

– Net Interest Income”

below, for

the table that reconciles

net interest income

in accordance with GAAP

to

the

non-GAAP

financial

measure

of

net

interest

income,

excluding

valuations,

and

on

a

tax-equivalent

basis

for

the

indicated

periods. The table also reconciles

net interest spread and

net interest margin on

a GAAP basis to these items

excluding valuations, and

on a tax-equivalent basis.

Tangible

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

common equity

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

Tangible

common equity is total

common equity

less

goodwill

and

other

intangibles.

Similarly,

tangible

assets

are

total

assets

less

goodwill

and

other

intangibles.

Management

and

many

stock

analysts

use

the

tangible

common

equity

ratio

and

tangible

book

value

per

common

share

in

conjunction

with

more

traditional bank capital

ratios to compare

the capital adequacy

of banking organizations

with significant

amounts of goodwill

or other

intangible assets,

typically stemming

from the

use of

the purchase

method of

accounting for

mergers

and acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures may

be useful to

investors. Neither

tangible common

equity nor

tangible assets, or the related measures,

should be considered in isolation or

as a substitute for stockholders’ equity,

total assets, or any

other measure

calculated in

accordance with

GAAP.

Moreover,

the manner

in which

the Corporation

calculates its

tangible common

equity, tangible assets, and

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

measures with similar names.

See “Risk

Management –

Capital” below

for the

table that

reconciles the

Corporation’s

total equity

and total

assets in

accordance

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income,

Adjusted Non-Interest Income and Adjusted Non-Interest

Expenses

To

supplement the

Corporation’s

Item 7. Management’s Discussion and Analysis of Financial

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

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

of

America

(“GAAP”).

See

“Special

Items”

and

“Basis

of

Presentation”

below

for

information

about

why

non-GAAP

financial

measures are presented

and the reconciliation

of non-GAAP financial

measures to the

most comparable GAAP

financial measures for

which the reconciliation is not presented earlier.

The detailed financial discussion that follows focuses on

2022 results compared to 2021.

For a discussion of 2021 results compared

to

2020,

see

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,

2021,

filed

with

the

Securities

and

Exchange

Commission (“SEC”) on March 1, 2022.

In

this

discussion

and

analysis

of

our

financial

condition

and

results

of

operations,

we

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

of

the

safe

harbor

provisions

of

Section

27A

of

the

Securities

Act

of

1933, as amended

(the “Securities Act”),

and Section 21E

of the Securities Exchange

Act of 1934, as

amended (the “Exchange

Act”).

Forward-looking statements are not historical

facts or statements of current conditions,

but instead represent only our beliefs regar

ding

future events, many of

which, by their nature, are inherently

uncertain and outside our control.

By identifying these statements

for you

in this manner,

we are alerting you to

the possibility that our actual

results, financial condition, liquidity

and capital actions may

differ

materially from the anticipated results,

financial condition, liquidity and capital

actions in these forward-looking statements.

Important

factors that

could cause

our results,

financial condition,

liquidity and

capital actions

to differ

from those

in these

statements include,

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

DESCRIPTION OF BUSINESS

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

SIGNIFICANT EVENTS

Economy

The Corporation

remains cautiously optimistic

on economic conditions

in Puerto Rico,

its principal market.

Total

non-farm payroll

employment

rose

to

a

decade

high

of

927,100

in

December

2022,

or

a

4%

year-over-year

increase.

Moreover,

the

most

recent

Economic Development

Bank for

Puerto Rico’s

Economic Activity

Index (“EDB-EAI”),

which is

highly correlated

to Puerto

Rico’s

real gross

national product

(“GNP”) in

both level

and annual

growth rates,

showed a

2.6% growth

for the

first nine

months of

2022.

Although

global

expectations

point

to

an

economic

slowdown

in

the

United

States,

the

Corporation

expects

growth

in

the

local

economy

to

be

sustained

by

the

large

amount

of

federal

disaster

relief

funds

that

are

pending

to

be

disbursed.

Over

$45

billion

remaining

obligated

disaster

recovery

funding

has

been

earmarked

to

support

broad

based

economic

development

and

rebuilding

initiatives.

Growth

in

economic

activity,

the

robustness

of

the

labor

market,

supply

chain

complications

and

geopolitical

matters,

have

contributed to rising

inflation. In response,

the Federal Reserve (the

“FED”) has raised interest

rates and has

been reducing the

size of

its balance

sheet. Furthermore,

the FED

signaled that

it would

continue to

implement these

policy actions

in order

to bring

inflation

down. The

timing and

impact of

inflation and

rising interest

rates on

our business

and related

financial results

will depend

on future

developments, which are highly uncertain and difficult

to predict.

We

delivered positive

results in

2022, driven

by continued

execution of

strategic initiatives

including loan

and lease

growth,

and

expanded

fee

income

while

maintaining

disciplined

expense

management.

Credit

continues

to

perform

well,

reflecting

lower

nonaccrual and adversely

classified loan balances,

as well as charge

-off rates that

are still lower

than pre-pandemic

levels. We

remain

vigilant to

changing global

economic conditions

and the

effect that

restrictive monetary

policies may

continue to

have on

the overall

inflationary

environment.

We

believe

that

the Corporation

is well

equipped

to manage

rising market

challenges

going into

the

next

cycle.

We

are

highly

encouraged

by

the

growth

prospects

in

our

main

market,

which

should

continue

to

benefit

from

rebuilding

activity over the next few years.

42

See

“Update

on

the

Puerto

Rico

Fiscal

Situation”

below

for

additional

information

on

the

economic

and

fiscal

crisis

that

Puerto

Rico has experienced for more than a decade.

Return of Capital to Shareholders

In 2022, the

Corporation returned

approximately $363

million, or 119%

of 2022 earnings,

to its shareholders

through $275

million

in repurchases of common stock and the payment of $88 million in common

stock dividends.

For the year ended December

31, 2022, the Corporation repurchased

approximately 19.4 million shares of

common stock for a total

purchase

price

of

$275.0

million

under

previously

publicly-announced

stock

repurchase

programs.

Of

this

total,

$225.0

million

of

common

stock,

representing

16.0

million

common

shares

at

a

weighted-average

price

of

$14.06,

were

repurchased

under

the

$350

million

stock

repurchase

program

announced

on

April

27,

2022

(the

“2022

Repurchase

Plan”).

As

of

February

21,

2023,

the

Corporation

has

repurchased

approximately

18.1

million

shares

of

common

stock

totaling

$254.9

million

through

open

market

purchases

under

the

2022

Repurchase

Plan.

With

the

additional

purchases,

the

Corporation

has

$95.1

million

remaining

for

share

repurchases under the 2022 Repurchase Plan.

On February

9, 2023,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.14

per common

share, which

represents an

increase of

$0.02 per

common share,

or a

17% increase,

compared to

its most

recent dividend

paid in

December 2022.

The dividend

is payable

on March

10,

2023 to

shareholders of

record

at the

close of

business on

February

24, 2023.

The increased

quarterly dividend level equates to an annualized dividend of $0.56 per common

share.

LIBOR Transition

On January 1, 2022,

the publication of certain

U.S. Dollar (“USD”) LIBOR

settings ceased. The

publication of the most

commonly

used

overnight,

one-month,

three-month,

six-month

and

twelve-month

USD

LIBOR

will

cease

immediately

after

June

30,

2023,

except that

per the

UK Financial

Conduct Authority

(the “FCA”)

proposal, the

one-, three-,

and six-month

tenors will

continue to

be

published on a “non-representative,” synthetic basis until September

30, 2024.

The Adjustable

Interest Rate

Act (the

“LIBOR Act”),

that was

enacted in

March 2022,

provides

a statutory

framework to

replace

USD LIBOR

for

contracts

governed

by

U.S.

law

that

do

not have

clear

and

practicable

provisions

for

replacing

USD LIBOR

after

June

30,

2023

(“tough

legacy

contracts”).

On

December

16,

2022,

the

FED

adopted

final

rule

12

C.F.R.

Part

253,

“Regulation

Implementing

the LIBOR

Act (Regulation

ZZ)” (the

“Final Rule”).

The Final

Rule identifies

replacement benchmark

rates based

on

the

Secured

Overnight

Financing

Rate (“SOFR”)

to

replace

the

aforementioned

USD LIBOR

settings

that

will

cease

after

June

30,

2023

in

contracts

subject

to

the

LIBOR

Act.

Under

the

final

rule,

tough

legacy

contracts

will

be

converted

by

operation

of

law

to

various forms of SOFR, along with a spread

adjustment, upon a LIBOR replacement date (i.e.,

the first London banking day after June

30, 2023).

The spread

adjustment was

designed to

compensate for

USD LIBOR

being higher

than SOFR in

two regards.

First, USD

LIBOR

is

an

unsecured

rate

while

SOFR

is

a

secured

rate.

Second,

USD

LIBOR

includes

term

premia.

In

addition,

the

final

rule

codifies

safe harbor

protections

for

selection or

use of

SOFR as

a replacement

benchmark

and

clarifies who

would be

considered

a

“determining person”

able to

elect a

replacement benchmark

when USD

LIBOR ceases

to be

published as

representative on

June 30,

2023.

As of

December 31,

2022, the

Corporation’s

risk exposure

to USD

LIBOR consisted

of the

following: (i)

$1.4 billion

of variable-

rate

commercial

and

construction

loans

(including

unused

commitments),

(ii)

$44.6

million

of

U.S.

agencies

debt

securities

and

private label mortgage-backed securities

(“MBS”) held as part

of the available-for-sale

debt securities portfolio, (iii)

$124.4 million of

Puerto

Rico

municipalities

bonds

held

as

part

of

the

held-to-maturity

debt

securities

portfolio,

and

(iv)

$183.8

million

of

junior

subordinated

debentures

reported

as

other

borrowings

in

the

accompanying

audited

consolidated

statements

of

financial

condition

included

in

Item 7. Management’s

Discussion

and Analysis

of Financial

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

conjunction

with such

financial statements

and the

notes thereto.

This

section

also

presents

certain

financial

measures

that

are

not

based

on

generally

accepted

accounting

principles

in

the United

States

(“GAAP”).

See “Basis of

Presentation” below

for information

about why the

non-GAAP financial

measures are

being presented

and

the reconciliation of

the non-GAAP financial measures

to the most comparable

GAAP financial measures for

which the reconciliation

is not presented earlier.

The detailed financial discussion that follows focuses on

2021 results compared to 2020.

For a discussion of 2020 results compared

to

2019,

see

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, 2020, which is incorpora

ted herein by reference.

DESCRIPTION OF BUSINESS

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the

Corporation

operates

in

Puerto

Rico,

the

USVI, the BVI, and the state of Florida, concentrating

on commercial banking, residential mortgage loans,

finance leases, credit cards,

personal loans, small loans, auto loans, and insurance agency activities.

SIGNIFICANT EVENTS

Stock Repurchase Program

On April

26, 2021,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation

may repurchase

up to

$300 million

of its

outstanding stock,

including common

and preferred

stock, commencing

in the

second

quarter of

2021 through

June 30,

2022. During

the year

ended December

31, 2021,

the Corporation

repurchased 16,740,467

shares of

its common

stock for

$213.9 million.

In addition,

on November

30, 2021,

the Corporation

redeemed all

of its

outstanding

shares of

non-convertible, non-cumulative

perpetual monthly

income, Series

A through

E Preferred

Stock for

its liquidation

value of

$36.1 million.

Furthermore,

during the

first quarter

of 2022

the Corporation

repurchased 3,409,697

million shares

of common

stock

for the remaining $50 million authorized under the stock repurchase

program.

COVID-19 Pandemic and Economy

The

ongoing

COVID-19

pandemic

has

caused

unprecedented

and

continuing

uncertainty,

volatility

and

disruption

in

financial

markets

and

in

governmental,

commercial

and

consumer

activity

in

worldwide,

including

in

the

markets

in

which

the

Corporation

operates. In

response, federal,

state, and

local governments

have taken

and continue

to take

actions designed

to mitigate

the effect

of

the virus on

public health and

to address the

economic impact of

the virus. As

restrictive measures were

eased during the

end of 2020

and into 2021, based

upon positive signs of

recovery driven by

vaccination and government

stimulus programs, economic

activity has

improved.

As

of

February

18,

2022,

approximately

6.6

million

vaccines

of

COVID-19

have

been

administered.

Approximately

2.9

million

people

have received

at least

one

dose of

the COVID-19

vaccine and

approximately 2.6

million

people,

or approximately

84.9% of

Puerto Rico’s eligible population,

have completed the vaccination process and 54.3% have received the booster

shot.

The

Corporation

continues

to

operate

consistent

with

guidance

from

federal

and

local

authorities.

The

Corporation’s

banking

branches

are

operating

during

regular

hours

following

health

and

safety

requirements

to

comply

with

federal

and

local

health

mandates, including, among other things, deep cleaning, face mask requirements

,

and strict social distancing measures. On February 8,

2022,

the

Corporation

announced

that

as

part

of

COVID-19

protocols,

all

employees,

service

providers

and

consultants

of

the

Corporation

must

have

the

booster

shot

of

the

COVID-19

vaccine

by

March

1,

2022,

with

few

exceptions.

Additional

vaccine

mandates

have

been announced

in jurisdictions

in which

our businesses

operate.

Adoption

of electronic

channels continues

to grow

significantly during

the ongoing

pandemic,

with active

digital banking

users growing

by 16%

during 2021

while capturing

over 40%

of deposits through digital and self-service channels.

Our

results

of

operations

for the

year

of

2021

continue

to reflect

an

improvement

from

the

disruption

caused

by

the COVID-19

pandemic. However,

we maintain a

cautious view

of the

macroeconomic outlook

due to

continuing uncertainty

regarding the

pace of

recovery

in the

economy and

uncertainty

related to

the COVID-19

pandemic,

including the

emergence

of new

variants of

the virus,

such as

the Omicron

variant, which

appears to

be the

most transmissible

variant to

date. Uncertainties

associated with

the pandemic

include

the

duration

of

the

COVID-19

outbreak

and

any

related

infections,

including

those

from

new

variants

of

the

virus,

the

47

effectiveness of

COVID-19 vaccines,

vaccination rates

among the

population, the

impact on

our customers,

employees,

and vendors,

and the impact to the economy as a whole.

The

CARES

Act

or

“CARES

Act

of

2020”,

as

amended

by

the

Consolidated

Appropriations

Act,

2021,

included

an allocation

of

$659

billion

for

SBA PPP

loans.

SBA

PPP loans

are

forgivable,

in

whole

or in

part,

if the

proceeds

are

used for

payroll and

other

permitted

purposes in

accordance

with the

requirements

of the

program.

These loans

carry a

fixed

rate of

1.00% and

a term

of two

years

(loans

made

before

June

5,

2020)

or

five

years

(loans

made

on

or

after

June

5,

2020),

if

not

forgiven,

in

whole

or

in

part.

Payments are

deferred until either

the date on

which the SBA

remits the amount

of forgiveness proceeds

to the lender

or the date

that

is 10

months after

the last

day of

the covered

period if