First BanCorp FBP Form 10-K filing FY2025

PART

I

Item 1.

Business

5

Item 1A.

Risk Factors

20

Item 1B.

Unresolved Staff Comments

32

Item 1C.

Cybersecurity

32

Item 2.

Properties

34

Item 3.

Legal Proceedings

34

Item 4.

Mine Safety Disclosures

34

PART

II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

35

Item 6.

[Reserved]

38

Item 1.

Business

GENERAL

First

BanCorp.

is

a

publicly

owned

financial

holding

company

that

is

subject

to

regulation,

supervision

and

examination

by

the

Federal Reserve Board. The Corporation was incorporated under

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

bank holding company

for FirstBank. Through

its subsidiaries, including

FirstBank, the Corporation

provides full-service commercial

and

consumer

banking

services,

mortgage

banking

services,

automobile

financing,

insurance

agency

services,

and

other

financial

products and

services in

Puerto Rico,

the U.S.,

the USVI

and the

BVI. As

of December

31, 2025,

the Corporation

had total assets

of

$19.1 billion, including loans held for investment

of $13.1 billion, total deposits of $16.7 billion, and total

stockholders’ equity of $2.0

billion.

The

Corporation

has

two

wholly-owned

subsidiaries:

FirstBank

and

FirstBank

Insurance

Agency,

Inc.

(“FirstBank

Insurance

Agency”).

FirstBank

is

a

Puerto

Rico-chartered

commercial

bank,

and

FirstBank

Insurance

Agency

is

a

Puerto

Rico-chartered

insurance agency.

FirstBank is subject to

the supervision, examination

and regulation of both

the Office of the

Commissioner of Financial Institutions

of

Puerto

Rico

(“OCIF”)

and

the

FDIC.

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund

(the

“DIF”).

In

addition,

within FirstBank,

the Bank’s

USVI operations

are subject to

regulation and examination

by the USVI

Division of Banking

Insurance,

and Financial

Regulation;

its BVI

operations are

subject to

regulation by

the BVI

Financial Services

Commission; and

its operations

in

the

state

of

Florida

are

subject

to

regulation

and

examination

by

the

Florida

Office

of

Financial

Regulation.

The

Consumer

Financial Protection Bureau (“CFPB”)

regulates FirstBank’s

consumer financial products and services.

FirstBank Insurance Agency is

subject to

the supervision,

examination and

regulation of

the Office

of the

Insurance Commissioner

of the

Commonwealth of

Puerto

Rico (the “Insurance Commissioner of Puerto Rico”) and the Division of

Banking, Insurance and Financial Regulation in the USVI.

FirstBank conducts its

business through its main

office located in

San Juan, Puerto Rico,

57 banking branches

in Puerto Rico, eight

banking

branches

in

the

USVI

and

the

BVI,

and

eight

banking

branches

in

the

state

of

Florida.

FirstBank

has

six

wholly-owned

subsidiaries

with

operations

in

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

a

finance

company

specializing

in

the

origination

of

small

loans

with

25

offices

in

Puerto

Rico;

First

Management

of

Puerto

Rico,

a

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

an

international

banking

entity

(an

“IBE”)

organized

under

the

International

Banking

Entity

Act

of

Puerto

Rico;

two

companies

engaged

in

the

operation

of

certain

real

estate

owned

properties and

a limited liability

corporation organized

in 2022 under

the laws of

the Commonwealth

of Puerto

Rico and Puerto

Rico

Tax

Incentive

Code

(“Act

60

of

2019”),

which

commenced

operations

in

2023

and

engages

in

qualified

investing

and

lending

transactions. The limited

liability corporation organized

under the laws

of Act 60 of 2019

has one wholly-owned

subsidiary organized

under such laws.

For a

discussion of

certain significant

events that

have occurred

in the

year ended

December 31,

2025, please

refer to

“Significant

Events” included in Part II, Item

7, “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations” of this

Form 10-K.

BUSINESS SEGMENTS

The Corporation has six reportable segments: Mortgage Banking;

Consumer (Retail) Banking; Commercial and Corporate Banking;

Treasury and Investments; United

States Operations; and Virgin

Islands Operations. These segments are described below,

as well as in

Note 21 – “Segment Information” to the audited financial statements included in Part II, Item 8 of this Form 10-K.

Mortgage Banking

The Mortgage Banking segment consists of the origination, sale and

servicing of a variety of residential mortgage loan products

and

related hedging

activities in

the Puerto

Rico region.

Originations are

sourced through

different channels,

such as

FirstBank branches

and purchases from mortgage bankers,

and in association with new project developers.

This segment focuses on originating

residential

real

estate

loans,

including

those

that

conform

to

the

U.S.

Federal

Housing

Administration

(the

“FHA”),

the

U.S.

Veterans

Administration (the “VA”)

and the U.S. Department

of Agriculture Rural

Development (the “RD”)

standards. Loans that

meet FHA’s

standards

qualify

for

FHA’s

insurance

while

loans

that

meet

VA

or

the

RD

standards

are

guaranteed

by

the

respective

federal

agencies.

Mortgage

loans that

do not

qualify

for

the FHA,

the

VA

or the

RD programs

are referred

to as

conventional

loans which

can be

conforming or non-conforming. Conforming

loans are those that meet the

standards for sale under the U.S.

Federal National Mortgage

Association

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”)

programs.

Loans

that

do

not

meet

6

FNMA

or

FHLMC

standards

are

referred

to

as

non-conforming

residential

real

estate

loans.

The

Mortgage

Banking

segment

also

acquires

and

sells mortgages

in the

secondary

market. Conforming

residential

real estate

loans are

sold to

investors

such

as FNMA

and

FHLMC,

and

the

Corporation

has

commitment

authority

to

issue

Government

National

Mortgage

Association

(“GNMA”)

mortgage-backed securities (“MBS”).

Consumer (Retail) Banking

The

Consumer

(Retail)

Banking

segment

includes

the

Corporation’s

consumer

lending,

commercial

lending

to

small

businesses,

commercial

transaction

banking,

and

deposit-taking

activities

(other

than

those assigned

to

the

Commercial

and

Corporate

Banking

segment)

primarily

conducted

through

FirstBank’s

branch

network,

ATMs

and

online

banking

in

the

Puerto

Rico

region.

Retail

deposits gathered through each

branch of FirstBank’s

retail network serve as

one of the funding

sources for its lending and

investment

activities. Other activities included in this segment are insurance

activities in the Puerto Rico region.

Commercial and Corporate Banking

The

Commercial

and

Corporate

Banking

segment

consists

of

the

Corporation’s

lending

and

other

services

for

large

customers

represented by

specialized and

middle-market

clients and

the government

sector in

the Puerto

Rico region.

This segment

consists of

the

Corporation’s

commercial

lending

(other

than

small business

commercial

loans)

and commercial

deposit-taking

activities (other

than the government sector). A substantial

portion of the commercial and

corporate banking portfolio is secured

by the underlying real

estate collateral and the personal guarantees from the borrowers.

Treasury and Investments

The

Treasury

and

Investments

segment

is

responsible

for

the

Corporation’s

investment

portfolio

and

treasury

functions.

The

treasury

function centrally

manages funding

by providing

funds to

the Mortgage

Banking,

Consumer (Retail)

Banking,

Commercial

and

Corporate

Banking,

United

States

Operations,

and

Virgin

Islands

Operations

segments

to

support

their

respective

lending

activities and by

compensating these

units for deposits

gathered. The Treasury

and Investments segment

also obtains funding

through

brokered

deposits,

advances

from

the

FHLB,

and

repurchase

agreements

involving

investment

securities,

among

other

funding

sources.

United States Operations

The

United

States Operations

segment

consists of

all banking

activities conducted

by FirstBank

on the

U.S. mainland.

FirstBank

provides a wide

range of banking services

to individual and corporate

customers, primarily in

southern Florida, through

eight banking

branches.

This

segment

offers

a

variety

of

consumer

and

commercial

banking

products

and

services.

Consumer

banking

products

include checking, savings and money market accounts, retail

CDs, internet banking services, residential mortgages, home equity

loans,

and lines of credit. Retail deposits, as well as FHLB advances and

brokered CDs assigned to this segment, serve as funding sources

for

its lending activities.

Commercial

banking

services

include

checking,

savings

and

money

market

accounts,

retail

CDs,

internet

banking

services,

cash

management

services,

remote

deposit

capture,

and

automated

clearing

house

(“ACH”)

transactions.

Loan

products

include

the

traditional commercial and industrial

(“C&I”) and commercial real

estate products, such as lines

of credit, term loans

and construction

loans.

Virgin Islands Operations

The Virgin

Islands Operations

segment consists

of all

banking activities

conducted

by FirstBank

in the

USVI and

BVI, including

consumer and commercial

banking services.

This segment operates

through eight banking

branches serving in

the USVI islands of

St.

Thomas, St. Croix, and

St. John, as well the island

of Tortola

in the BVI. This segment’s

primary business activities include

consumer

and

commercial

lending

and

deposit-taking

activities.

Retail

deposits

gathered

through

each

branch

serve

as

the

primary

funding

sources for the segment’s lending

activities.

CORPORATE SUSTAINABILITY

PROGRAM OVERVIEW

The

Corporation

is

committed

to

supporting

its

clients,

employees,

shareholders

and

communities

it

serves.

Its

Corporate

Sustainability

program,

which

includes

environmental,

social

and

governance

(“ESG”)

matters,

builds

on

its

core

values,

including

being

a socially

responsible

company.

The Corporation

sees effective

ESG management

as a

critical step

towards

a sustainable

and

successful future.

During 2021, the Corporation adopted an ESG framework

to guide its corporate sustainability strategy and governance.

In 2025, the

Corporation

published

its

most

recent

First

Bancorp

Corporate

Sustainability

Report

for

2024

(the

“2024

Report”),

which

provides

7

disclosure

on

a

wide

range

of

ESG

topics,

including

governance;

business

ethics

and

compliance;

responsible

marketing

and

sales

practices; sustainable and

accessible finance; responsible

banking, including details

as to data

security and cyber

management; people

and culture; community impact; and environmental responsibility.

Sustainability Governance

The

Corporation’s

Board

of

Directors

and

executive

leadership

team

share

responsibilities

relating

to

oversight

of

its

corporate

sustainability

policies

and

practices.

In

February

2022,

the

Corporate

Governance

and

Nominating

Committee

of

the

Board

of

Directors

amended

its

charter

to

include

oversight

responsibility

of

sustainability

matters,

and

it

has

primary

oversight

of

ESG

policies,

practices

and

disclosures.

Nonetheless,

other

committees

of

the

Corporation’s

Board

of

Directors

also

play

a

role

in

ESG

oversight in matters related to risk and cybersecurity management, human

capital management, and credit risk management.

As

part

of

the

sustainability

governance

structure

set forth

in

FirstBanCorp.’s

Sustainability

Policy,

which

was

approved

by

the

Corporation’s Board of

Directors in 2022 and subsequently amended,

the responsibility of day-to-day management of

its sustainability

framework

and

strategy

has

been

delegated

to

a

management-level

Sustainability

Committee,

comprised

of

leaders

from

different

areas,

such

as

Human

Resources,

Enterprise

Risk

Management,

Strategic

Planning

and

Investor

Relations,

Legal

and

Corporate

Affairs,

Marketing,

Compliance,

Finance,

and

Corporate

Internal

Audit.

The

Sustainability

Committee

is

tasked

with

aligning

priorities

and

initiatives

for

the

year,

setting

and

monitoring

long-term

objectives,

and

leading

the

annual

reporting

process

on

sustainability-related

topics.

The

Sustainability

Committee

reports

to

the

Corporate

Governance

and

Nominating

Committee

of

the

Board of Directors.

HUMAN CAPITAL MANAGEMENT

First BanCorp.

strives to be

recognized as

a leading

and diversified financial

institution, offering

superior experience

to our clients

and employees. We

believe that the key to our success is caring about our team as much

as we care about our customers. Our goal is to

be an

employer of

choice

within our

primary operating

regions, which

we believe

is achieved

and sustained

by adding

value

to our

employees’

lives

and

providing

satisfying

and

evolving

work

experience.

The

core

of

our

employer

value

proposition,

“The

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

success, professional development, and work environment.

Employees

As of December 31,

2025, the Corporation and

its subsidiaries had 3,218

regular employees representing

a 3.4% increase in overall

headcount

from December

31, 2024.

The Corporation

had 2,854

employees in

the Puerto

Rico region,

206 employees

in the

Florida

region,

and

158

employees

in

the

Virgin

Islands

region.

As

of

December

31,

2025,

approximately

66%

of

the

total

employee

population and 58% of management positions were women.

Oversight

The Human

Resources Division,

led by

the Human

Resources Director

who reports

directly to

the Corporation’s

Chief Consumer

Officer

and

Corporate

Chief

of

Staff,

manages

all

elements

of

the

Corporation’s

human

capital

programs

and

strategies,

including

talent management, talent acquisition, engagement, learning and

development, compensation and benefits.

The

Human

Resources

Division’s

efforts

are

also

overseen

by

the

Corporation’s

Chief

Executive

Officer

(“CEO”)

and

the

executive management team

through regular work-related

interactions. Our leaders focus

on strengthening employee

management and

engagement

and

maximizing

collaboration

between

departments

and

talents

by

promoting

an

open-door

culture

that

stimulates

frequent communication

between employees and

management. This provides

more opportunities to

identify employees’

needs, obtain

feedback

about

their

work-life

experience,

and

act

upon

such

feedback

to

improve

employee

engagement.

In

addition,

the

Corporation’s

Board

of

Directors

and

its

Compensation

and

Benefits

Committee

monitor

and

are

regularly

updated

on

the

Corporation’s human capital management

strategies.

8

Talent

Management

First BanCorp. is an equal

opportunity employer which considers

qualified candidates for employment

to fill its open positions. We

focus

our

efforts

on attracting

and

retaining

the

best

talent for

the Corporation,

including

college

graduates,

and promoting

internal

mobility. The attraction

and selection process includes:

• Posting vacancies internally and externally;
• Building employer brand through digital presence, professional events and

job fairs, and university partnerships;

• Collaboration with hiring managers to

ensure accurate role alignment to

accelerate the recruitment process and

attraction of top

candidates with the right fit for the role;

• A robust management information system to enhance

recruitment effectiveness and provide

candidates with unique experience;

and

• A robust

on-boarding process

to engage

and support

new employees’

induction process,

including assignment

of a

“FirstPal”

from day one to help with the organizational culture

transition and learning process.

We

believe

that financial

security

is critical

for

our employees.

Our goal

is to

maintain

compensation

levels that

are competitive

with the

market

and comparable

job categories

in similar

organizations.

Our salary

administration

program

is designed

to provide

a

compensation

structure

that

is

consistent

with

our

employees’

level

of

responsibilities

to

attract

the

best

talent

for

each

job

and

commensurately pay for performance.

In

addition

to

base

salaries,

certain

job

positions

are

eligible

to

participate

in

variable

pay

programs

designed

to

align

employee

performance

with

the

Corporation’s

strategic

and

financial

objectives.

The

Corporation

maintains

incentive

programs

for

revenue

generation

and

sales

functions

to

support

business

units.

These

programs

are

reviewed

annually

to

ensure

alignment

with

business

strategies, performance objectives,

and sound risk

management practices. The

Corporation’s Management

Award

Program recognizes

and

rewards outstanding

performance

for exempt

employees who

do not

participate in

other

variable pay

programs. In

addition,

the

Corporation maintains a long-term incentive

plan for top-performing leaders and

employees, as well as identified high-potential

talent,

to

promote

sustained

performance,

leadership

development,

and

long-term

retention.

These

programs

have

fostered

a

stable

and

experienced workforce, reflected in

an average tenure of 11

years as of December 31, 2025.

The Corporation’s

voluntary turnover rate

declined

to

9.59%

in

2025,

compared

to

10.91%

in

2024,

with

turnover

primarily

attributable

to

hourly

employees

in

call

centers,

collections

centers

and

branches.

Turnover

among

high

performers

improved,

decreasing

to

2.4%

in

2025

from

3.6%

for

2024,

underscoring the effectiveness of the Corporation’s

compensation, engagement, and retention strategies.

Talent Development

and Engagement

We

believe

that a

culture of

learning and

development

maximizes the

talent of

human

capital and

is the

foundation for

sustained

business success. Our commitment to employee engagement continues

throughout employees’ time with the Corporation.

Our

learning

and

development

program

strives

to

align

with

both

employees’

and

the

organization’s

needs,

offering

online,

in-

person,

and

virtual

training,

as

well

as

development

activities,

special

projects,

and

partial

tuition

reimbursement

to

complete

a

bachelor’s

or

master’s

degree

to

eligible

employees.

The

Learning

and

Development

priorities

cover

five

areas:

Fundamentals,

Governance and Compliance, Technical

and Specialized Development, Professional Development, and Leadership.

In

2025,

we

delivered

more

than

114,000

training

hours

across

more

than

1,800

courses

through

all

learning

modalities.

New

supervisors

completed

programs

focused

on

foundational

supervision,

leadership,

communication,

and

HR

policies,

while

the

leadership

curriculum continued

to strengthen

both technical

and people

-management

skills. The

Leadership

Development program,

which incorporates structured feedback from instructors and peers, has reached

63% of current leaders since its launch.

In

addition

to these

learning opportunities,

we

support professional

development

and

career

growth,

including

the internal

career

advancement,

performance

management

processes,

annual

talent

review,

and

robust

succession

planning.

We

also

encourage

employees to participate in community initiatives, volunteering over

2,800 hours supporting more than 35 organizations in 202

9

Health & Wellness

First

BanCorp.

provides

comprehensive

health

and

wellness

benefits

designed

to

support

employees’

occupational,

physical,

emotional, and financial well-being.

Benefits include health, dental

and vision insurance offered

through multiple insurance providers,

enabling

employees

to

select

coverage

options

that

best

meet

their

individual

and

family

needs.

The

Corporation

also

offers

an

Employee

Assistance Program

to provide

holistic support

and

resources addressing

a broad

range of

employees’

needs. In

addition,

the Corporation

offers life

insurance and

disability plans,

as well

as a

defined

contribution retirement

plan in

which both

employees

and

the employer

contribute.

For

employees

in

the Puerto

Rico

region,

the

Corporation provides

an additional

true-up

contribution.

The Corporation

further supports employee

wellness through fitness

facilities at its

main offices,

instructor-led wellness sessions,

and

wellness tours that promote healthy lifestyle practices. The Corporation

subsidizes a substantial portion of the cost of these benefits.

Work-life

balance remains

a key

priority; therefore,

the Corporation

offers various

paid time-off

benefits, including

vacation, sick

leave,

maternity

and

paternity

leave,

bereavement

leave,

marriage

leave,

personal

days,

and

flexible

work

arrangements,

including

hybrid work arrangements.

The wellness program also includes on-site

occupational medical and nursing health

services, nutrition and

fitness initiatives, health

fairs, vaccination clinics preventive

healthcare activities and targeted

education focused on personal

financial

and

health

literacy.

To

enhance

quality

of

life

and

optimize

workplace

conditions,

the

wellness

program

provides

on-site

musculoskeletal

demonstrations,

tobacco-use prevention

education, discount

programs for

laboratory testing

and consumer

products,

and an emergency donation program to support employees

experiencing catastrophic events.

MARKET AREA AND COMPETITION

The

Corporation

operates

in

highly

competitive

markets

and

is

subject

to

significant

business,

economic

and

competitive

uncertainties

and contingencies.

In particular,

the banking

market

is highly

competitive in

Puerto Rico,

the main

geographic

service

area of

the Corporation.

As of December

31, 2025,

the Corporation

also had presence

in the state

of Florida

and in the

USVI and

the

BVI.

Puerto

Rico

banks

are

subject

to

the

same

federal

laws,

regulations

and

supervision

that

apply

to

similar

institutions

on

the

United States mainland.

Competitors include

other banks,

insurance companies,

mortgage banking

companies, small

loan companies,

automobile financing

companies,

leasing companies,

brokerage firms

with retail

operations,

credit unions

and certain

retailers that

operate in

Puerto Rico,

the

USVI,

the

BVI,

and

the

state

of

Florida,

as well

as

financial

technology

(“fintech”)

companies

and

emerging

competition

from

digital

platforms.

The

Corporation’s

businesses

compete

with

these

other

firms

with

respect

to

the

range

of

products

and

services

offered and the types of clients, customers and industries served.

See Part I, Item 1A, “Risk Factors” for further discussion of risks related to

competition.

SUPERVISION AND REGULATION

The

Corporation

and

FirstBank,

its

bank

subsidiary,

are

subject

to

comprehensive

federal

and

Puerto

Rican

supervision

and

regulation that

govern all aspects

of the Corporation’s

and the Bank’s

activities, including

commercial and

consumer lending, deposit

taking, management,

governance and

other activities.

As part

of this

regulatory framework,

the Corporation

and the

Bank are

subject

to extensive consumer financial protection laws, regulatory,

legal, and supervisory requirements, which continue to change in

response

to

new

legislative

or

regulatory

actions.

See

Part

I,

Item

1,

“Business–General”

above

for

additional

regulatory

oversight

and

supervision

of

FirstBank

Insurance

Agency.

Future

legislative

or

regulatory

developments

may

increase

the

oversight

of

the

Corporation and the Bank and could materially affect its business.

The

Corporation

is also

subject

to the

disclosure

and

regulatory

requirements

of the

Securities Act

of 1933,

as amended,

and

the

Securities

Exchange

Act

of

1934,

as amended,

both

as administered

by

the

SEC, as

well

as the

rules

applicable

to

companies

with

securities listed on the New York

Stock Exchange.

The following discussion summarizes

certain laws, regulations and policies

to which the Company is subject.

It does not address all

applicable laws, regulations

and policies that

affect the Company

currently or might

affect it in

the future. This

discussion is qualified

in its entirety by reference to the full texts of the laws, regulations and policies described.

10

Bank Holding Company Activities and Other Limitations

The Corporation

is registered

as a

bank holding

company under

the Bank

Holding Company

Act of

1956, as

amended (the

“Bank

Holding

Company

Act”),

and

is

subject

to

ongoing

supervision,

regulation,

and

examination

by

the

Federal

Reserve

Board.

In

this

capacity,

the

Corporation

is

required

to

file

periodic

and

annual

reports

as

well

as

other

information

regarding

its

own

business

operations and those of its subsidiaries.

The Bank Holding

Company Act also permits

a bank holding company

to elect to become

a financial holding

company and engage

in a

broader range

of financial

activities. As

a result,

the Corporation

has elected

to be

a financial

holding company

under the

Bank

Holding

Company

Act

and

may

engage,

directly

or

indirectly,

in

any

activity

that

is

determined

to

be

(i)

financial

in

nature,

(ii)

incidental to such

financial activity,

or (iii) complementary

to a financial activity

and does not pose

a substantial risk

to the safety and

soundness of

depository institutions

or the

financial system

generally.

The Bank

Holding Company

Act specifically

provides that

the

following

activities

have

been

determined

to

be

“financial

in

nature”:

(i)

lending,

trust

and

other

banking

activities;

(ii)

insurance

activities; (iii) financial or economic

advice or services; (iv) pooled investments;

(v) securities underwriting and dealing; (vi)

domestic

activities permitted for an existing

bank holding company; (vii) foreign activities

permitted for an existing bank holding

company; and

(viii) merchant banking activities.

The Corporation

and FirstBank

must be

“well-capitalized” and

“well-managed”

for regulatory

purposes, and

FirstBank must

earn

“satisfactory” or better ratings

on its periodic Community

Reinvestment Act (“CRA”) examinations

for the Corporation to preserve

its

financial holding

company status.

If these

standards are

not met,

the Federal

Reserve Board

may impose

limitations on

the financial

holding company’s activities until

compliance is restored.

Under

federal

law

and

Federal

Reserve

Board

policy,

a

bank

holding

company,

such

as the

Corporation,

is

expected

to

act

as

a

source

of strength

to its

banking

subsidiaries,

including

by providing

capital

and other

support

as necessary.

In the

event

of a

bank

holding company’s

bankruptcy,

any commitment made

by the bank

holding company to

a federal bank

regulatory agency

to maintain

capital

of

a

subsidiary

bank

will

be

assumed

by

the

bankruptcy

trustee

and

accorded

priority

for

payment.

In

addition,

any

capital

loans by

a bank

holding company

to any

of its

subsidiary banks

must be

subordinated in

right of

payment to

deposits and

to certain

other

indebtedness

of such

subsidiary bank.

As of

December

31,

2025,

and the

date hereof,

FirstBank was

and

is the

Corporation’s

sole banking subsidiary.

State-Chartered Non-Member Bank and Banking Laws and

Regulations

in General

FirstBank

is

subject

to

supervision,

regulation,

and

examination

by

the

OCIF,

the

CFPB

and

the

FDIC,

and

is

subject

to

comprehensive

federal

and

state

(including,

for

this

purpose,

the

Commonwealth

of

Puerto

Rico)

regulations

that

regulate,

among

other things,

the scope

of its

businesses, its

investments, its

reserves against

deposits, the

timing and

availability of

deposited funds,

and the nature and amount of collateral required for certain loans.

The

OCIF,

the

CFPB

and

the

FDIC

conduct

periodic

examinations

of

FirstBank

to

assess

its

financial

condition,

ensure

the

maintenance

of

safe

and

sound

banking

practices,

and

evaluate

compliance

with

applicable

statutory

and

regulatory

requirements.

Supervision by

the FDIC

is also

intended for

the protection

of the

Deposit Insurance

Fund (“DIF”)

and depositors.

These regulatory

authorities have discretion in connection with their

supervisory and enforcement activities and examination

policies, including policies

with respect

to the

classification of

assets and

the establishment

of adequate

loan loss

reserves for

regulatory purposes.

Enforcement

actions

include

civil

monetary

penalties,

cease-and-desist

or

removal

orders,

and

injunctive

actions

which

may

be

imposed

for

violations

of

laws

and

regulations,

or

for

unsafe

or

unsound

practices.

Other

actions

or

failure

to

act

may

provide

the

basis

for

enforcement action, including the filing of misleading or untimely reports

with regulatory authorities.

Regulatory Capital Requirements

The Corporation

and FirstBank are

each subject to

minimum regulatory

capital requirements imposed

by federal banking

agencies.

These

requirements

are

redesigned

to

align

U.S.

regulatory

capital

requirements

with

international

regulatory

capital

standards

adopted by the Basel Committee on Banking Supervision

(“Basel Committee”), in particular, the

international capital accord known as

“Basel

III.” Under

the

Basel

III

rules,

the

Corporation

must

maintain

certain

minimum

capital

ratios

to

be

considered

adequately

capitalized and to

avoid the regulatory limitations

described above. These

requirements include: (i) a

minimum common equity

Tier 1

Capital

(“CET1”)

ratio

of

4.5%,

plus

a

2.5%

capital

conservation

buffer;

(ii)

a

minimum

Tier

1

capital

ratio

of

6.0%,

plus

a

2.5%

capital conservation

buffer; (iii)

a minimum

Total

capital (Tier

1 plus

Tier

2. ratio

of 8.0%,

plus a

2.5% capital

conservation buffer;

and (iv) a required minimum leverage ratio (Tier

1 capital to average on-balance sheet non-risk adjusted assets) of 4%.

As part of

regulatory relief measures

implemented in

response to the

economic impact of

COVID-19, the

federal banking agencies

issued

an

interim

final

rule

on

March

31,

2020,

providing

the

option

to

temporarily

delay

the

regulatory

capital

effects

of

current

expected credit

losses (“CECL”). This

transition framework provided

for a total

five-year phase-in period,

which ended on

January 1,

The

Corporation

and

the

Bank

elected

to

utilize

this

transition

option

and,

as

of

January

1,

2025,

have

fully

recognized

the

impact of CECL in their regulatory capital ratios.

11

The following table presents

the Corporation’s

and FirstBank’s

regulatory capital ratios as

of December 31, 2025,

based on Federal

Reserve and FDIC guidelines:

Banking Subsidiary

First BanCorp.

FirstBank

Well-Capitalized

Minimum

As of December 31, 2025

Total capital to risk-weighted

assets

18.01%

17.61%

10.00%

CET1 Capital to risk-weighted assets

16.76%

15.60%

6.50%

Tier 1 capital to risk-weighted assets

16.76%

16.35%

8.00%

Leverage ratio

(1)

11.58%

11.30%

5.00%

(1) Tier 1 capital to average assets.

Stress-Testing

and Capital Planning Requirements

Federal

regulations

currently

do

not

impose

formal

stress-testing

requirements

on

banking

organizations

with

total

assets

of

less

than $100

billion, such

as the

Corporation

and FirstBank.

Instead, the

capital planning

and risk

management practices

of such

banks

are reviewed through

the regular supervisory

process. Notwithstanding,

the Corporation monitors

its capital consistent

with the safety

and

soundness

expectations

of

the

federal

regulators

and

continues

to

perform

internal

stress

testing

as

part

of

its

annual

capital

planning process.

Dividend Restrictions

The Federal

Reserve Board

generally restricts

bank holding

companies from

paying cash

dividends unless

its net

income available

to

common

shareholders

for

the

past

four

quarters,

net

of dividends

previously

paid

during

that

period,

has

been

sufficient

to

fully

fund the

dividends and

the prospective

rate of

earnings retention

appears to

be consistent

with the

organization’s

capital needs,

asset

quality,

and overall current and prospective

financial condition. Under the

Federal Reserve Board’s

regulatory capital rule (Regulation

Q), a bank holding

company must maintain a capital

conservation buffer of

CET1 capital in an amount

greater than 2.5% of total

risk-

weighted

assets to

avoid

limits

on

capital

distributions.

The

Corporation

is also

subject

to

certain

restrictions

generally

imposed

on

Puerto Rico corporations

with respect to

the declaration

and payment of

dividends (i.e.,

that dividends may

be paid out

only from

the

Corporation’s

capital

surplus

or,

in

the

absence

of

such

excess,

from

the

Corporation’s

net

earnings

for

such

fiscal

year

and/or

the

preceding fiscal year).

The principal

source of

funds for

the Corporation,

as a

parent holding

company,

is dividends

declared and

paid by

its subsidiary,

FirstBank. The

ability of

FirstBank to

declare and

pay dividends

on its

capital stock

is regulated

by the

Puerto Rico

Banking Law

of

1933,

as

amended

(the

“Puerto

Rico

Banking

Law”),

the

Federal

Deposit

Insurance

Act

(the

“FDIA”),

and

FDIC

regulations.

In

general

terms,

the

Puerto

Rico

Banking

Law

provides

that when

the

expenditures

of

a bank

are greater

than

receipts,

the

excess

of

expenditures over

receipts shall

be charged

against undistributed

profits of

the bank

and the

balance, if

any,

shall be

charged against

the required

reserve fund

of the

bank. If

the reserve

fund is

not sufficient

to cover

such balance

in whole

or in

part, the

outstanding

amount

must be

charged

against the

bank’s

capital account.

The Puerto

Rico Banking

Law provides

that, until

said capital

has been

restored to its original

amount and the reserve

fund to 20% of

the original capital, the

bank may not declare

any dividends. In general,

regulations

of

the

FDIA

and

the

FDIC

restrict

the

payment

of

dividends

when

a

bank

is

undercapitalized

(as

discussed

in

Prompt

Corrective

Action

below),

when

a

bank

has

failed

to

pay

insurance

assessments,

or

when

there

are

safety

and

soundness

concerns

regarding such bank.

Refer

to

Part

II,

Item

5,

“Market

for

Registrant’s

Common

Equity,

Related

Stockholder

Matters

and

Issuer

Purchases

of

Equity

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

distribution of dividends and repurchases of common stock.

Consumer Financial Protection Bureau (“CFPB”)

The

CFPB has

primary

examination

and enforcement

authority

over FirstBank

and other

banks

with assets

exceeding

$10 billion

with respect to consumer financial products and services.

The CFPB supervises “covered

persons” (broadly defined

to include any person

offering or providing

a consumer financial product

or

service

and

any

affiliated

service

provider)

for

compliance

with

federal

consumer

financial

laws,

including

the

Equal

Credit

Opportunity Act,

the Truth

in Lending

Act (“TILA”)

and the

Real Estate

Settlement Procedures

Act (“RESPA”).

The CFPB

also has

authority

to prescribe

rules applicable

to covered

persons and

service providers

in connection

with consumer

financial products

and

services.

12

Among

other

actions,

the

CFPB

has

issued

mortgage

servicing

regulations

applicable

to

the

Bank,

addressing

consumer

notices

regarding

delinquency,

foreclosure

alternatives,

modification

applications,

interest rate

adjustments

and

options

for avoiding

“force-

placed”

insurance,

as

well

integrated

disclosure

requirements

under

TILA

and

RESPA

applicable

to

mortgage

loan

origination

and

closing.

During

2025,

the

CFPB

finalized

and

advanced

several

significant

regulatory

initiatives

affecting

large

depository

institutions,

including

a

final

rule

substantially

restricting

overdraft

fees

for

institutions

with

more

than

$10

billion

in

assets

and

increased

supervisory focus

on mortgage servicing,

credit reporting

accuracy,

and fee practices

that may cause

tangible human

harm. However,

in May

2025, Congress

nullified the

CFPB’s

overdraft fee

rule pursuant

to the

Congressional Review

Act, and

the rule

will not

take

effect. As a result,

the CFPB is prohibited

from issuing substantially similar overdraft

fee rule absent new statutory

authorization from

Congress.

In

addition,

the

CFPB

finalized

its

Personal

Financial

Data

Rights

(Open

Banking)

rule

in

October

2024;

however,

implementation of that

rule has been stayed

by a federal court

and the CFPB initiated

a new rulemaking

process in 2025 to

reconsider

and potentially revise the framework, creating continued uncertainty

regarding compliance timelines.

Since

early

2025,

the

CFPB

has

significantly

reduced

its

enforcement,

supervision,

and

rulemaking

activities,

consistent

with

broader deregulatory

priorities of the

Trump administration.

These developments have

included the withdrawal

or recission of

certain

guidance,

dismissal

of

enforcement

actions,

reduced

examination

activity,

and

proposals

to

substantially

downsize

the

agency

and

limit its funding. While statutory

authority remains unchanged, the scope,

pace, and intensity of CFPB supervision

and regulation may

continue to evolve, and the ultimate impact on covered institutions remains

uncertain.

The Volcker

Rule

Section

13

of

the

Bank

Holding

Company

Act,

commonly

known

as

the

Volcker

Rule,

generally

prohibits

a

banking

entity,

including the

Corporation and the

Bank, from engaging

in short-term proprietary

trading of certain

securities, derivatives,

commodity

futures,

and

options

on

these

instruments

for

its

own

account.

The

Volcker

Rule

also

restricts

banking

entities

from

acquiring

or

retaining any ownership in, or acting as sponsor to, a hedge fund

or private equity fund (“covered fund”).

The Corporation and

the Bank are not engaged

in “proprietary trading” as

defined in the Volcker

Rule. In addition, the

Corporation

has reviewed its investments and concluded that they are not considered

covered funds under the Volcker

Rule.

Community Reinvestment Act

The

CRA

encourages

banks

to

help

meet

the

credit

needs

of

communities

they

serve,

including

low-

and

moderate-income

individuals,

consistent with

the safe

and sound

operation of

the bank.

The CRA

requires the

federal supervisory

agencies, as

part of

the

general

examination

of

supervised

banks,

to

assess

a

bank’s

record

of

meeting

the

credit

needs

of

its

community,

assign

a

performance

rating,

and

consider

the

rating

when

reviewing

certain

applications

such

as

mergers,

branch

establishment,

and

other

activities. A

rating of

less than

“satisfactory” could

result in

the denial

of such

applications. The

CRA also requires

all institutions

to

make

public

disclosure

of

their

CRA

ratings.

FirstBank

received

a

“satisfactory”

CRA

rating

in

its most

recent

examination

by

the

FDIC.

In

October

2023,

the

U.S.

federal

banking

regulatory

agencies

issued

a

final

rule

to

strengthen

and

modernize

their

regulations

implementing the CRA,

originally scheduled

to take effect

on April 1,

2024, with most

of its provisions

applicable beginning

January

1,

2026

and

data

reporting

required

in

However,

several

banking

industry

groups

filed

a

lawsuit

challenging

the

rule,

and

in

March

2024

a

federal

judge

granted

an

injunction

delaying

its

effective

date.

In

July

2025,

the

FDIC,

Federal

Reserve

Board,

and

OCC announced

their intent

to rescind

the 2023

CRA final

rule and

revert to

the 1995

CRA regulations.

As a

result, banks

currently

remain

subject

to

the

1995

CRA

framework,

and

the

enhanced

requirements

contemplated

by

the

2023

CRA

final

rule

are

not

in

effect.

USA PATRIOT

Act and Other Anti-Money Laundering Requirements

As

a

regulated

depository

institution,

FirstBank

is

subject

to

the

Bank

Secrecy

Act,

which

requires

financial

institutions

to

file

suspicious

activity and

currency transaction

reports that

are designed

to assist

in the

detection

and

prevention of

money laundering,

terrorist financing and other criminal activities. In addition,

under Title III of the USA PATRIOT

Act of 2001, all financial institutions

are

required

to

identify

their

customers,

adopt

formal

and

comprehensive

anti-money

laundering

programs,

scrutinize

or

prohibit

certain transactions

of special

concern, and

be prepared

to respond

to inquiries

from U.S.

law enforcement

agencies concerning

their

customers and their transactions.

In

January

2021,

major

legislative

amendments

to

U.S.

anti-money

laundering

requirements

became

effective

through

the

enactment

of

Division

F

of

the

National

Defense

Authorization

Act

for

fiscal

year

2021,

otherwise

known

as

the

Anti-Money

Laundering

Act

of

2020

(the

“AML

Act”).

The

AML

Act

significantly

modernized

the

U.S.

AML

and

counter-terrorist

financing

framework, including the creation of a national database of

corporate beneficial ownership along with significantly

enhanced reporting

13

requirements,

increased

penalties

for

Bank

Secrecy

Act

violations,

clarification

of

Suspicious

Activity

Report

filing

and

sharing

requirements,

and

provisions

addressing

the

adverse

consequences

of

“de-risking,”

namely,

the

practice

of

financial

institutions’

termination or

limitation of

business relationships

with clients

or classes

of clients

in order

to manage

the risks

associated with

such

clients.

Regulations implementing the Bank Secrecy Act and the

USA PATRIOT

Act are published and primarily enforced

by the Financial

Crimes Enforcement Network (“FinCEN”),

a bureau of the U.S.

Treasury.

Failure of a financial institution,

such as the Corporation

or

the

Bank,

to

comply

with

the

requirements

of

the

Bank

Secrecy

Act

or

the

USA

PATRIOT

Act

could

have

serious

legal

and

reputational

consequences

for

the

institution,

including

the

possibility

of

regulatory

enforcement

or

other

legal

actions,

such

as

significant

civil

monetary

penalties.

The

Corporation

is

also

required

to

comply

with

federal

economic

and

trade

sanctions

requirements enforced by the Office of Foreign Assets Control

(“OFAC”), a bureau

of the U.S. Treasury.

The Corporation believes

it has adopted appropriate

policies, procedures and controls

to address compliance with

the Bank Secrecy

Act, USA

PATRIOT

Act and

economic/trade

sanctions requirements,

and to

implement banking

agency,

FinCEN, OFAC

and

other

U.S. Treasury regulations.

Financial Privacy and Cybersecurity

The

Gramm-Leach-Bliley

Act

limits

the

ability

of

financial

institutions

to

disclose

non-public

consumer

information

to

non-

affiliated

third parties,

requires disclosure

of privacy

policies to

consumers and,

in some

circumstances,

allow consumers

to prevent

disclosure of certain personal information to a non-affiliated

third party.

The

federal

banking

regulators

regularly

issue

guidance

to

strengthen

cybersecurity

risk

management

standards.

Financial

institutions are expected to maintain multiple lines of

defense and robust risk management processes to

address potential cyber threats.

Management

must

ensure

effective

procedures

to

respond

to

and

recover

operations

after

a

cyber-attack

and

establish

processes

to

restore

data and

business functions

if a

critical service

provider is

impacted. Our

Corporate Information

Security

Program

(“CISP”)

reflects these

requirements

and

outlines

our

overall vision,

direction,

and governance

efforts to

protect

the confidentiality,

integrity,

and availability of customer information and prevent access by unauthorized

personnel.

In July

2023, the

SEC adopted

rules requiring

registrants to

disclose material

cybersecurity incidents

and provide

annual reporting

regarding cybersecurity

risk management,

strategy,

and governance.

Registrants must

report cybersecurity

material incidents

on Item

1.05 of Form

8-K within four

business days of

determining materiality,

describing the

incident’s

nature, scope,

and timing, as

well as

its material impact or reasonably likely material impact on the registrant.

The rule also added Regulation S-K Item 106, which requires

disclosure

of the

registrant’s

processes,

if any,

for assessing,

identifying, and

managing material

risks from

cybersecurity

threats, as

well

as

the

material

effects

or

reasonably

likely

material

effects

of

risks

from

cybersecurity

threats

and

previous

cybersecurity

incidents on Item

1C. Cybersecurity to

this Form 10-K.

Item 106 also

requires registrants to

describe the board

of directors’ oversight

of risks

from cybersecurity

threats and

management’s

role and

expertise in

assessing and

managing material

risks from

such threats.

These disclosures are included in Part I, Item 1C. “Cybersecurity”

to this Form 10-K.

Limitations on Transactions with Affiliates

and Insiders

Certain

transactions

between

FDIC-insured

depository

financial

institutions,

such

as

FirstBank,

and

its affiliates

are

governed

by

Sections 23A

and 23B of

the Federal Reserve

Act and Regulation

W of the

Federal Reserve.

An affiliate

of a bank

is, in general,

any

corporation

or entity

that controls,

is controlled

by,

or is

under

common

control with

the bank,

including

the bank’s

parent

holding

company and any companies that are controlled by such holding company.

Generally,

Sections 23A and 23B of

the Federal Reserve Act (i)

limit the extent to which

the bank or its subsidiaries

may engage in

“covered

transactions”

with

any

one

affiliate

to

an

amount

equal

to

10%

of

such

bank’s

capital

stock

and

surplus,

and

contain

an

aggregate limit

on all

such transactions

with all

affiliates to

an amount

equal to 20%

of such

bank’s

capital stock and

surplus and

(ii)

require

that all

“covered transactions”

be on

terms that

are substantially

the same,

or at

least as

favorable

to the

bank or

affiliate,

as

those

provided

to

a

non-affiliate.

The

term

“covered

transaction”

includes

the

making

of

loans,

purchase

of

assets,

issuance

of

a

guarantee, credit

derivatives, securities

lending and

other similar

transactions entailing

the provision

of financial

support by

the bank

to an affiliate. In

addition, loans or other extensions

of credit by the bank

to the affiliate are required

to be collateralized in accordance

with the requirements set forth in Section 23A of the Federal Reserve Act.

In

addition,

Sections

22(h)

and

(g)

of

the

Federal

Reserve

Act,

implemented

through

Regulation

O,

place

restrictions

on

commercial bank loans to executive

officers, directors, and principal stockholders

of the bank and its affiliates.

Under Section 22(h) of

the Federal Reserve

Act, bank loans to

a director, an

executive officer,

a greater than 10%

stockholder of the

bank, and certain related

interests of these persons,

may not exceed, together

with all other outstanding

loans to such persons

and affiliated interests,

the bank’s

limit on loans

to one borrower,

which is generally

equal to 15%

of the bank’s

unimpaired capital and

surplus in the

case of loans

that

are not fully secured,

and an additional 10% of

the bank's unimpaired capital

and unimpaired surplus in

the case of loans that

are fully

14

secured by

readily marketable

collateral having

a market

value at

least equal

to the

amount of

the loan.

Section 22(h)

of the

Federal

Reserve Act also requires

that loans to directors,

executive officers, and

principal stockholders be made

on terms that are substantially

the same

as offered

in comparable

transactions to

other persons

and also

requires prior

board approval

for certain

loans. In

addition,

the

aggregate

amount

of

extensions

of

credit

by

a

bank

to

insiders

cannot

exceed

the

bank’s

unimpaired

capital

and

surplus.

Furthermore, Section 22(g) of the Federal Reserve Act places additional

restrictions on loans to executive officers.

Executive Compensation

The federal

banking agencies

have adopted

interagency guidance

on incentive-based

compensation arrangements

applicable to

all

banking

organizations

regardless

of

asset

size.

This

guidance

establishes

a

principles-based

framework

designed

to

ensure

that

incentive-based

compensation

arrangements

appropriately

tie

rewards

to

longer-term

performance

and

do

not

undermine

the

safety

and soundness of banking

organizations or create undue

risks to the financial system.

The framework emphasizes

balanced risk-taking

incentives, compatibility

with effective

controls and risk

management, and

strong corporate governance,

and provides for

supervisory

or enforcement action where material deficiencies threaten an institution’s

safety and soundness.

In May

2016, the

federal financial

regulators re-proposed

regulations under

Section 956

of the

Dodd-Frank Act

(first proposed

in

governing

incentive-based

compensation

practices

at

covered

banking

institutions,

which

would

include,

among

others,

all

banking

organizations

with

assets

of

$1

billion

or

greater.

Portions

of

these

proposed

rules

would

apply

to

the

Corporation

and

FirstBank. Those

applicable provisions

would generally (i)

prohibit types

and features of

incentive-based compensation

arrangements

that encourage inappropriate

risk because they

are “excessive” or

“could lead to

material financial loss”

at the banking

institution; (ii)

require

incentive-based

compensation

arrangements

to

adhere

to

three

basic

principles:

(1)

a

balance

between

risk

and

reward;

(2)

effective

risk management

and controls;

and (3)

effective governance;

and (iii)

require appropriate

board of

directors (or

committee)

oversight and recordkeeping and disclosures to the banking

institution’s primary regulatory agency.

As of December 31, 2025, the rule

has

not

been

finalized.

Although

several

federal

banking

agencies

re-proposed

the

rule

in

2024,

the

absence

of

joint

action

by

all

required regulators continues to delay adoption, and the timing and substance

of any final rule remain uncertain.

In August 2022,

the SEC introduced

new pay-versus-performance

disclosure rules, which

took effect

in October 2022,

requiring to

clearly disclose

the relationship

between executive

compensation and

the company’s

financial performance.

Additionally,

in October

2022,

the

SEC

finalized

a

rule

that

directs

stock

exchanges

to

require

listed

companies

to

implement

clawback

policies

to

recover

incentive-based

compensation

from

current

or

former

executive

officers

in

the

event

of

certain

financial

restatements,

and

requires

companies

to, among

other

things,

file

their

clawback

policies as

Exhibit

97 of

Form 10-K.

Our

Compensation

Clawback

Policy

is

compliant with NYSE’s listing standards

pursuant to this rule.

Prompt Corrective Action

The

“prompt

corrective

action”

provisions

of

the

FDIA

require

the

federal

bank

regulatory

agencies

to

take

prompt

corrective

action

against

any

insured

depository

institution

that

is

undercapitalized.

The

FDIA

establishes

five

capital

categories:

well-

capitalized,

adequately

capitalized,

undercapitalized,

significantly

undercapitalized,

and

critically

undercapitalized.

Well-capitalized

insured depository institutions significantly exceed the required minimum

level for each relevant capital measure.

A bank’s

capital category

may not

constitute

an accurate

representation

of the

overall financial

condition

or prospects

of a

bank,

such

as

the

Bank,

and

should

be

considered

in

conjunction

with

other

available

information

regarding

the

financial

condition

and

results of operations of such bank.

Deposit Insurance

FirstBank

is

subject

to

FDIC

deposit

insurance

assessments,

which

increased

for

all

banks,

including

FirstBank,

following

the

increase

in

deposit

insurance

coverage

to

up

to

$250,000

per

customer

and

the

FDIC’s

expanded

authority

to

increase

insurance

premiums implemented

by the

Dodd-Frank Act.

The FDIA

further requires

that the

designated reserve

ratio for

the DIF

for any

year

not be less than 1.35% of estimated

insured deposits or the comparable percentage

of the new deposit assessment base. In addition,

the

FDIC was

required to

take the

necessary actions

for the

reserve ratio

to reach

1.35% of

estimated insured

deposits by

September 30,

2020. The FDIC managed

to reach the goal early,

achieving a reserve ratio of

1.36% in September 2018. However,

in the third quarter

of 2020,

the FDIC

announced

that the

reserve

ratio of

the DIF

fell nine

basis points

between

the first

and

second

quarters of

2020,

from 1.39% to 1.30%.

The decline was attributed to

an unprecedented surge

in deposits. The FDIC approved

a plan that is expected

to

restore

the

DIF

to

at

least

1.35%

within

eight

years,

as

required

by

the

FDIA.

Under

the

plan,

the

FDIC

will

maintain

the

current

schedules

of assessment

rates

for

all banks;

monitor

deposit balance

trends,

potential losses

and

other

factors

that affect

the reserve

ratio; and

provide updates

to its

loss and

income projections

at least

twice a

year.

The FDIC

has also

adopted a

final rule

raising its

industry

target ratio

of reserves

to insured

deposits to

2%, 65

basis points

above the

statutory minimum,

but the

FDIC has

indicated

that it does not project that goal to be met for several years.

15

In

October

2022,

the

FDIC

adopted

a

final

rule,

applicable

to

all

insured

depository

institutions,

to

increase

initial

base

deposit

insurance assessment rate schedules

uniformly by 2 basis points,

beginning in the first quarterly

assessment period of 2023.

The FDIC

designated a

long-term reserve

ratio for

the DIF

of 2%

and has

continued to

maintain that

designation through

2026. The

increase in

assessment rate schedules

was intended to

increase the likelihood

that the reserve ratio

of the DIF would

reach the statutory

minimum

of 1.35% by

the statutory deadline

of September 30,

2028. As of 2025,

the FDIC has reported

that the DIF reserve

ratio has exceeded

the

statutory

minimum

and

remains

below

the

2%

designated

reserve

ratio.

Accordingly,

the

increased

assessment

rate

schedules

remain in effect. Progressively lower assessment rate schedules

will take effect if the reserve ratio reaches 2% and again at 2.5%.

In November

2023, the FDIC

issued a final

rule imposing

a special assessment

to recover

estimated losses incurred

by the Deposit

Insurance

Fund

(“DIF”)

resulting

from

the

closures

of

Silicon

Valley

Bank

and

16

Holding Company Act and

the CBCA generally require prior

Federal Reserve Board or other

federal banking agency approval or

non-

objection for an acquisition

of control of an

“insured institution” (as defined

in the Act) or holding

company thereof by any person

(or

persons acting in

concert). Control is

deemed to exist

if, among other

things, a person (or

group of persons

acting in concert)

acquires

25% or more

of any class of

voting stock of

an insured institution

or holding company

thereof. Under the CBCA,

control is presumed

to exist

subject to

rebuttal if

a person

(or group

of persons

acting in

concert) acquires

10% or

more of

any class

of voting

stock and

either (i)

the corporation

has registered securities

under Section

12 of

the Exchange Act,

or (ii) no

person (or

group of persons

acting

in

concert)

will own,

control

or

hold

the

power

to

vote

a

greater

percentage

of that

class of

voting

securities

immediately

after

the

transaction.

The

concept

of

acting

in

concert

is

broad

and

subject

to

certain

rebuttable

presumptions,

including,

among

others,

that

relatives, business

partners, management

officials, affiliates

and others

are presumed

to be acting

in concert

with each other

and their

businesses. The regulations of the FDIC implementing the

CBCA are generally similar to those described above.

The Puerto

Rico Banking

Law requires

the approval

of the

OCIF for

changes in

control of

a Puerto

Rico bank.

See “Puerto

Rico

Banking Law” below for further detail.

Standards for Safety and Soundness

The

FDIA

requires

the

FDIC

and

other

federal

bank

regulatory

agencies

to

prescribe

standards

of

safety

and

soundness.

Bank

regulators

have

various

remedies

available

if

they

determine

that

the

financial

condition,

capital

resources,

asset

quality,

earnings

prospects, management,

liquidity,

or other

aspects of

a banking

organization’s

operations are

unsatisfactory.

The regulators

may also

take action

if they

determine that

the banking

organization or

its management

is violating

or has

violated any

law or

regulation. The

regulators

have

the

power

to,

among

other

things,

prohibit

unsafe

or

unsound

practices,

require

affirmative

actions

to

correct

any

violation

or

practice,

issue

administrative

orders

that

can

be

judicially

enforced,

direct

increases

in

capital,

direct

the

sale

of

subsidiaries

or

other

assets,

limit

dividends

and

distributions,

restrict

growth,

assess

civil

monetary

penalties,

remove

officers

and

directors, and terminate deposit insurance.

Engaging in

unsafe or

unsound practices

or failing

to comply

with applicable

laws, regulations,

and supervisory

agreements could

subject

the

Corporation,

its

subsidiaries,

and

their

respective

officers,

directors,

and

institution-affiliated

parties

to

the

remedies

described

above,

and

other

sanctions.

In

addition,

the

FDIC may

terminate

a

bank’s

deposit

insurance

upon

finding

that

the

bank’s

financial condition is unsafe or

unsound or that the bank has engaged

in unsafe or unsound practices or has

violated an applicable rule,

regulation, order, or condition enacted

or imposed by the bank’s regulatory

agency.

Regulatory Framework for Leveraged Lending Activities

In December

2025, the

OCC and

the FDIC

rescinded the

Interagency Guidance

on Leveraged

Lending (“2013

Guidance”) and

its

2014

FAQs,

citing

that

the

framework

was

overly

restrictive,

extended

beyond

its

intended

scope,

and

contributed

to

a

shift

of

leveraged

lending

to

nonbank

lenders.

In

addition,

the

2013

Guidance

had

not

been

submitted

to

Congress

as

required

under

the

Congressional

Review

Act.

Following

the

rescission,

banks

are

expected

to

manage

leveraged

lending

activities

under

general

principles for safe

and sound lending,

consistent with broader

commercial credit risk

management standards.

Institutions are expected

to maintain

a defined

risk appetite,

apply a

consistent internal

definition of

leveraged loans,

adhere to

sound underwriting

standards,

monitor

borrower

performance

and

refinancing

risk,

and

conduct

independent

credit

assessments

for

participations.

Examiners

will

continue

to

assess

underwriting,

risk

ratings,

and

reserves

based

on

the

size

and

risk

profile

of

each

bank’s

leveraged

lending

activities. The rescission does not result in immediate changes to Call Report requirements.

Brokered Deposits

FDIC regulations

adopted

under

the FDIA

govern

the receipt

of brokered

deposits by

banks. Well

-capitalized

institutions are

not

subject

to

limitations

on

brokered

deposits,

while

adequately

capitalized

institutions

are

able

to

accept,

renew

or

rollover

brokered

deposits only

with a

waiver from

the FDIC

and subject

to certain

restrictions on

the interest

paid on

such deposits.

Undercapitalized

institutions

are

not

permitted

to

accept

brokered

deposits.

In

October

2020,

the

FDIC

adopted

revisions

to

its

brokered

deposit

regulations that became

effective on April

1, 2021, with

full compliance extended

to January 1,

2022. For brokered

deposits, the final

rule established

a new framework

for analyzing

certain parts of

the “deposit

broker” definition,

including a new

interpretation for

the

“primary purpose” exception and

the business relationships that meet the

exception. Pursuant to this revision, during

the fourth quarter

of 2021, certain non-maturity deposits previously reported as brokered

deposits were recharacterized as non-brokered deposits.

Puerto Rico Banking Law

As

a

commercial

bank

organized

under

the

laws

of

the

Commonwealth

of

Puerto

Rico,

FirstBank

is

subject

to

supervision,

examination and regulation by the

commissioner of OCIF (the “Commissioner”)

pursuant to the Puerto Rico

Banking Law of 1933, as

amended (the “Banking Law”), which governs its corporate

structure, powers, capital and investment requirements,

lending limits, and

the authority of the Commissioner.

17

The Banking Law requires

every bank to maintain

a legal reserve, which shall

not be less than

20% of its demand

liabilities, except

government deposits (federal,

state and municipal) that

are secured by actual

collateral. The reserve is required

to be composed of

any

of the permitted

securities, or a

combination thereof,

including cash, immediately

collectible items,

and other assets

authorized by the

Commissioner.

Section 17 of the Banking Law,

as amended by Section 8.2 of Regulation No. 9680, permits Puerto

Rico commercial banks to make

loans to

any one

person, firm,

partnership or

corporation in

an aggregate

amount of

up to

15% of

the sum

of: (i) the

bank’s

paid-in

capital;

(ii) the

bank’s

reserve

fund;

(iii) 100%

of

the

bank’s

retained

earnings,

subject

to

certain

limitations;

and

(iv) any

other

components

that

the

Commissioner

may

determine

from

time to

time.

If such

loans

are secured

by collateral

worth

at least

25%

in

excess of the

loan amount,

the aggregate

maximum amount may

reach 33.33%

of the sum

of the bank’s

paid-in capital,

reserve fund,

100%

of retained earnings,

subject to certain

limitations, and such

other components that

the Commissioner may

determine from time

to time. There

are no restrictions

under the Banking

Law on the

amount of loans

that may be

wholly secured by

bonds, securities and

other evidences

of indebtedness of

the government

of the United

States, or of

the Commonwealth

of Puerto

Rico, or by

bonds, not

in

default, of municipalities or instrumentalities of the Commonwealth of

Puerto Rico.

The Banking Law

requires that Puerto

Rico commercial banks prepare

each year a balance

summary of their

operations and submit

such balance

summary

for approval

at a

regular meeting

of stockholders,

together with

an explanatory

report thereon.

The Banking

Law also requires

that at least

10% of the

yearly net income

of a Puerto

Rico commercial bank

be credited annually

to a reserve

fund

until such reserve fund is in an amount equal to the total paid-in-capital

of the bank.

The

Banking Law

also provides

that when

a Puerto

Rico commercial

bank’s

expenditures

exceed its

receipts,

the excess

must be

charged

first

to

undistributed

profits

of

the

bank,

then

to

the

reserve

fund,

and,

if

needed,

to

the

capital

account,

and

it

prohibits

declaration of dividends until capital has been restored to its original

amount and the reserve fund equals 20% of the original capital.

The

Finance

Board,

composed

of

representatives

from

various

Puerto

Rico

Government

agencies,

instrumentalities

and

public

corporations,

including the

Commissioner,

has the

authority to

regulate the

maximum interest

rates and

finance charges

that may

be

charged

on

loans

to

individuals

and

unincorporated

businesses

in

Puerto

Rico,

but

current

regulations

allow

most

such

rates

to

be

determined

by

free

competition.

Accordingly,

the

regulations

do

not

set

a

maximum

rate

for

charges

on

retail

installment

sales

contracts, small

loans, and

credit card

purchases. Furthermore,

there is

no maximum

rate set for

installment sales

contracts involving

motor vehicles, commercial, agricultural and industrial equipment,

commercial electric appliances and insurance premiums.

International Banking Center Regulatory Act of Puerto Rico (“IBE Act 52”)

The business and operations

of FirstBank International Branch

(“FirstBank IBE” or the “IBE

division of FirstBank”)

and FirstBank

Overseas Corporation (the IBE subsidiary of FirstBank)

are subject to supervision and regulation by

the Commissioner. FirstBank IBE

and FirstBank

Overseas Corporation

were established

pursuant to

Puerto Rico Act

52-1989, as

amended, known

as the “International

Banking

Center

Regulatory

Act”

(the

IBE

Act

52).

The

IBE

Act

52

provides

for

total

Puerto

Rico

tax

exemption

on

net

income

derived by

an IBE operating

in Puerto Rico

on the specific

activities identified

in the IBE

Act 52. An

IBE that operates

as a unit

of a

bank

pays

income taxes

at

the corporate

standard rates

to the

extent

that

the IBE’s

net

income

exceeds 20%

of the

bank’s

total net

taxable income.

Under the

IBE Act 52,

certain sales,

encumbrances, assignments,

mergers, exchanges

or transfers

of shares,

interests

or participation(s)

in the

capital of

an IBE

may not

be initiated

without the

prior approval

of the

Commissioner.

The IBE

Act 52

and

the regulations issued thereunder

by the Commissioner (the “IBE

Regulations”) limit the business

activities that may be

carried out by

an IBE. Such activities are limited in part to persons and assets located outside

of Puerto Rico.

Pursuant to the

IBE Act 52 and

the IBE Regulations,

each of FirstBank IBE

and FirstBank Overseas

Corporation must maintain,

in

Puerto

Rico,

books

and

records

of

its

transactions

conducted

in

the

ordinary

course

of

business.

FirstBank

IBE

and

FirstBank

Overseas

Corporation

are

also

required

to

submit

to

the

Commissioner

quarterly

reports

of

their

financial

condition

and

results

of

operations, and are required to comply with the annual audited financial

statements requirement.

The IBE Act

52 empowers

the Commissioner

to revoke

or suspend, after

notice and hearing,

a license issued

thereunder if,

among

other things, the IBE fails to

comply with the IBE Act 52, the IBE

Regulations or the terms of its license,

or if the Commissioner finds

that the business or affairs of the IBE are conducted in a manner

that is not consistent with the public interest.

On February

16, 2024,

the Governor

of Puerto

Rico approved

Act 45

of 2024

which amended

the IBE

Act 52. These

amendments

became

effective

on

May

15,

2024,

and,

among

other

things,

increased

the

annual

license

fee

paid

by

the

IBEs

to

OCIF

from

$5

thousand to $25 thousand and amended

certain other compliance matters, including

a minimum employment requirement of eight

full-

time

employees.

The amendments

also

established

updated

prudential

standards,

such

as higher

minimum

paid-in

capital, enhanced

custody

and

asset-quality rules,

and

a phased

increase in

required

unencumbered

assets for

existing

IBEs, from

$0.5 million

for

the

2024-2025

compliance

period

to

$1.5

million

by

2027–2028,

while

newly

organized

entities

must

maintain

at

least

$1

million

in

unencumbered assets.

18

Puerto Rico Income Taxes

Under the

Puerto Rico

Internal Revenue

Code of

2011,

as amended

(the “PR

Tax

Code”), the

Corporation and

its subsidiaries

are

treated as separate taxable

entities and are not entitled

to file consolidated tax returns.

However, certain

subsidiaries that are organized

as

limited

liability

companies

with

a

partnership

election

are

treated

as

pass-through

entities

for

Puerto

Rico

tax

purposes.

A

subsidiary

may

realize

a

tax benefit

from

a

net

operating

loss (“NOL”)

only

if

it

can generate

sufficient

taxable

income

within

the

applicable NOL

carryforward period.

The PR Tax

Code provides

a dividend received

deduction of

100% on

dividends received

from

“controlled” subsidiaries subject to taxation in Puerto Rico and 85% on

dividends received from other taxable domestic corporations.

On July 17, 2025, the Government of Puerto Rico enacted

Act 65-2025 which, among other things, allows domestic

limited liability

companies owned

by legal entities

to elect to

be treated

as disregarded

entities for tax

purposes. As a

result of this

change, during

the

third

quarter

of

2025,

the

Corporation

reversed

approximately

$16.6

million

in

valuation

allowance

related

to

deferred

tax

assets

primarily

associated

with

NOL

carryforwards

at

the

holding

company

level.

This

reversal

reflects

the

Corporation’s

expectation

of

realizing these tax benefits under the new election established by

the Act.

The

Corporation

has

maintained

an

effective

tax

rate

lower

than

the

maximum

statutory

rate

in

Puerto

Rico,

which

has

resulted

mainly

from conducting

business through

certain

entities

that have

special

tax treatments,

including

doing business

through

an IBE

unit of

the Bank and

through FirstBank Overseas

Corporation, each

of which are

generally exempt

from Puerto

Rico income taxation

under IBE

Act 52,

and through

a wholly-owned

subsidiary that

engages in

certain Puerto

Rico qualified

investing activities

that have

certain tax advantages under Act 60 of 2019.

United States Income Taxes

As

a

Puerto

Rico

corporation,

First

BanCorp.

is

treated

as

a

foreign

corporation

for

U.S.

and

USVI

income

tax

purposes

and,

accordingly,

is generally

subject to

U.S. and

USVI income

tax only

on its income

from sources

within the

U.S. and

USVI or

income

effectively

connected with

the conduct

of a

trade or

business in

those jurisdictions.

Any such

tax paid

in the

U.S. and

USVI is

also

creditable against the Corporation’s

Puerto Rico tax liability, subject

to certain conditions and limitations.

Insurance Operations Regulation

As a financial holding

company under the Bank

Holding Company Act,

we are permitted to

engage in a broader

range of activities,

including insurance activities, that are permitted to bank holding

companies.

FirstBank Insurance Agency

is registered as an

insurance agency with the

Insurance Commissioner of

Puerto Rico and is

subject to

regulations issued by

the Insurance Commissioner

of Puerto Rico and

the Division of

Banking, Insurance and

Financial Regulation in

the USVI

relating to,

among other

things, the

licensing of

employees and

sales and

solicitation and

advertising practices,

and by

the

Federal Reserve

Board as

to certain

consumer protection

provisions mandated

by the

Gramm-Leach-Bliley Act

and its

implementing

regulations.

Mortgage Banking Operations

In

addition

to

FDIC

and

CFPB

regulations,

FirstBank

is

subject

to

the

rules

and

regulations

of

the

FHA,

VA,

FNMA,

FHLMC,

GNMA, and

the U.S.

Department of

Housing and

Urban Development

(“HUD”)

with respect

to originating,

processing,

selling and

servicing mortgage

loans and the

issuance and

sale of MBS.

Those rules

and regulations,

among other

things, prohibit discrimination

and

establish

underwriting

guidelines

that

include

provisions

for

inspections

and

appraisals,

require

credit

reports

on

prospective

borrowers

and

fix

maximum

loan

amounts,

and,

with

respect

to

VA

loans,

fix

maximum

interest

rates.

Moreover,

lenders

such

as

FirstBank are required

annually to submit

audited financial statements

to the FHA, VA,

FNMA, FHLMC, GNMA and

HUD and each

regulatory entity

has its

own financial

requirements. FirstBank’s

affairs are

also subject

to supervision

and examination

by the

FHA,

VA,

FNMA,

FHLMC,

GNMA

and

HUD

at

all

times

to

assure

compliance

with

applicable

regulations,

policies

and

procedures.

Mortgage origination activities are subject

to, among other requirements, the Equal

Credit Opportunity Act, TILA and

the RESPA

and

the

regulations

promulgated

thereunder

that,

among

other

things,

prohibit

discrimination

and

require

the

disclosure

of certain

basic

information to

mortgagors concerning

credit terms

and settlement

costs. FirstBank

is licensed

by the

Commissioner under

the Puerto

Rico

Mortgage

Banking

Law,

and,

as

such,

is

subject

to

regulation

by

the

Commissioner,

with

respect

to,

among

other

things,

licensing requirements and the establishment of maximum origination

fees on certain types of mortgage loan products.

19

WEBSITE ACCESS TO REPORT

The Corporation

makes available

annual reports

on Form

10-K, quarterly

reports on Form

10-Q, and current

reports on

Form 8-K,

and amendments to

those reports, and proxy

statements on Schedule 14A,

filed or furnished pursuant

to Sections 13(a), 14(a)

or 15(d)

of the Exchange

Act, free of

charge on or

through its internet

website at www.1firstbank.com

(under “Investor Relations”)

or directly

through

the

Corporation’s

investor

relations

website,

fbpinvestor.com,

as

soon

as

reasonably

practicable

after

the

Corporation

electronically

files

such

material

with,

or

furnishes

it

to,

the

SEC.

The

SEC

maintains

a

website

that

contains

reports,

proxy

and

information statements, and other information regarding

issuers that file electronically with the SEC at www.sec.gov.

The

Corporation

also

makes

available

its

Corporate

Governance

Guidelines

and

Principles,

the

charters

of

the

Audit,

Asset/Liability,

Compensation

and

Benefits,

Credit,

Risk,

Trust,

and

Corporate

Governance

and

Nominating

Committees

and

the

documents listed below,

free of charge on or through its internet website at www.fbpinvestor.com

(under Corporate Governance):

• Code of Ethics for CEO and Senior Financial Officers (the “Code of

Ethics”)

• Code of Ethical Conduct applicable to all employees
• Independence Principles for Directors
• Corporate Sustainability Reports
• Sustainability Policy

The Corporate

Governance Guidelines and

Principles and the

aforementioned charters

and documents may

also be obtained

free of

charge

by

sending

a written

request

to

Mrs. Sara

Alvarez Cabrero

,

Executive

Vice

President,

General

Counsel

and

Secretary

of the

Board, PO Box 9146, San Juan, Puerto Rico 00908.

Website addresses

referenced in this Form

10-K are provided as textual references

and for convenience only,

and the content on the

referenced

websites does

not constitute

a part

of this

Form

10-K

or any

other report

or document

that the

Corporation

files with

or

furnishes to the SEC.

20

Item 1A.

Risk Factors

Below is

a discussion

about material

risks and

uncertainties that

could impact

the Corporation’s

businesses, results

of operations,

financial

condition,

liquidity,

and

capital

position,

and

could

cause

actual

results

to

differ

materially

from

those

projected

in

any

Statements,” in this Form 10-K.

RISKS RELATING TO

THE BUSINESS ENVIRONMENT AND OUR INDUSTRY

The

effect

of

changes

in

the

interest

rate

environment

and

inflation

levels

on

the

level,

composition

and

performance

of

the

Corporation’s

assets and

liabilities, and

corresponding effects

on the

Corporation’s

net interest

income, net

interest margin,

loan

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

position.

Net

interest

income

represents

the

difference

between

the

interest

earned

on

interest-earning

assets

and

interest

paid

on

interest-

bearing liabilities.

Because assets

and liabilities

may reprice

at different

times and

by different

amounts, changes

in interest

rates can

materially affect

net interest income

and net interest

margin. Prolonged

periods of

lower interest rates

generally compress

net interest

margin and reduce profitability.

Higher interest rates can increase

borrowing costs for consumers

and businesses, reduce loan

demand,

and

shift customer

behavior

among

deposit products,

which

can negatively

affect

loan

growth,

deposit retention,

funding costs,

and

liquidity.

Competitive pressures

to attract

deposits may

increase reliance

on higher-cost

funding, including

wholesale funding,

which

could

further

compress

net

interest margin.

Interest

rates

are

influenced

by

factors

beyond

our

control,

including

general

economic

conditions, inflationary

trends, changes

in government spending

and debt issuances

and monetary policy

actions of governmental

and

regulatory agencies, including the Federal Reserve Board.

Additionally,

basis

risk

may

adversely

affect

net

interest

income.

Basis

risk

arises

when

interest

rates

for

different

financial

instruments

with

similar

maturities,

or

the

indices

used

to

price

them,

change

at

different

times

or

by

different

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

interest

rates

on

loans

and

borrowings

change

at

different

rates

and

by

different

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

interest

rates

may

impact

the

ability

to

attract

and

retain

clients,

as

well

as

gain

acceptance

from

current

and

prospective

customers

for

new

and

existing

products

and

services.

This,

in

turn,

affects

demand

for

new

loan

originations,

the

composition

of the

Corporation’s

interest-earning

assets, and

the extent

of any

re-shifting between

non-interest-bearing

and interest-

bearing liabilities.

Further,

changes in

interest rates

impact the

value of

our fixed-rate

securities. Any

unrealized gains

or losses

from

these portfolios

impact other

comprehensive income,

stockholders’ equity,

and the

tangible common

equity ratio.

Any realized

gains

or losses from these 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

increase,

and

the duration

of MBS

will decrease.

Such acceleration

in the

prepayments

of MBS

would

lower yields

on

these

securities,

as

the

amortization

of

premiums

paid

upon

the

acquisition

of

these

securities

would

accelerate.

Conversely,

acceleration in

the prepayments

of MBS

would increase

yields on

securities purchased

at a

discount, as

the accretion

of the

discount

would

accelerate.

Also,

net

interest

income

in

future

periods

might

be

affected

by

our

investment

in

callable

securities

because

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

The

volatility

in

the

financial

services

industry,

which

could

result

in,

among

other

things,

bank

deposit

runoffs,

liquidity

constraints, and increased regulatory requirements and costs.

The

closure

and

placement

into receivership

with

the

FDIC of

certain

large

U.S.

regional

banks

with

assets over

$100

billion

in

March

and

May

2023,

and

adverse

developments

affecting

other

banks,

resulted

in

heightened

levels

of

market

volatility

and

consequently

negatively

impacted

customer

confidence

in

the

safety

and

soundness

of

financial

institutions.

These

developments

resulted in certain

regional banks experiencing

higher than normal

deposit outflows and

an elevated level

of competition for

available

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

assessment

to

recover

certain

estimated

losses to

the

Deposit

Insurance

Fund

(“DIF”)

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

depository

institutions,

including

the

Bank,

and

collection

began

during

the

quarter

ended

June

30,

As

of

21

December 31,

2025, the

Corporation’s

total estimated

FDIC special

assessment amounted

to $6.3

million, of

which $5.5

million has

been paid.

The Corporation

continues to

monitor the

FDIC’s

estimated loss

to the

DIF,

which could

affect the

amount of

its accrued

liability.

Difficult market

and general

economic conditions

have affected

the financial

industry in

the past

and could

adversely affect

us

in the future.

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

U.S. and given the degree of interrelation between

Puerto Rico’s economy

and that

of the

U.S., we

are exposed

to downturns

in the

U.S. economy,

including factors

such as

employment levels

in the

U.S. and

real

estate

valuations.

The

deterioration

of

these

conditions

has

adversely

affected

us

in

the

past

and

in

the

future

could

adversely

affect

the

credit

performance

of

mortgage

loans,

and

result

in

significant

write-downs

of

asset

values

by

financial

institutions,

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

our customers

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

estimate

losses

inherent

in

the

credit

exposure,

particularly

those

under

CECL,

require

difficult,

subjective, and

complex judgments,

including forecasts

of economic

conditions and

how these

economic predictions

might

impair

the

ability

of

the borrowers

to

repay

their

loans, which

may

no longer

be

accurately estimated

and

which

may,

in

turn, impact the reliability of the models.

• Our

ability

to

borrow

from

other

financial

institutions

or

to

engage

in

sales

of

mortgage

loans

to

third

parties

(including

mortgage

loan

securitization

transactions

with

GSEs

and

repurchase

agreements)

on

favorable

terms,

or

at

all,

could

be

adversely

affected

by

further

disruptions

in

the

capital

or

credit

markets

or

other

events,

including

deteriorating

investor

expectations.

• Competitive dynamics

in the

industry could

change as

a result

of strategic

growth opportunities

in connection

with current

market conditions.

• Expected

future

regulation

of

our

industry

may

increase

our

compliance

costs

and

limit

our

ability

to

pursue

business

opportunities.

• There may be downward pressure on our stock price.

Any deterioration

of economic

conditions in

the U.S.

and disruptions

in the

financial markets

could adversely

affect our

ability to

access capital,

our business,

financial condition,

and results

of operations.

Unfavorable or

uncertain economic

and market

conditions

have

been

and

could

cause

declines

in

economic

growth,

business

activity

or

investor

or

business

confidence;

limitations

on

the

availability or

increases in

the cost

of credit

and capital;

increases in inflation

or interest rates;

high unemployment;

natural disasters;

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

Additionally,

the

residential

mortgage

loan

origination

business

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

interest

rates,

the

refinancing

of

many

mortgage

products

tends

to

decrease

as

the

economic

incentives

for

borrowers

to

refinance their existing mortgage loans are reduced.

Any sustained

period of

increased delinquencies,

foreclosures, or

losses could

adversely affect

our ability

to sell

loans, the

prices

we receive

for loans,

the values

of mortgage

loans held

for sale,

or residual

interests in

securitizations, which

could adversely

affect

our

financial

condition

and

results

of

operations.

In

addition,

any

additional

material

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

substantial

competition

in

all

areas

of

our

operations

from

a

variety

of

different

competitors,

including

other

banks,

insurance

companies,

mortgage

banking

companies,

small

loan

companies,

automobile

financing

companies,

leasing

companies,

brokerage

firms

with

retail

operations,

credit

unions,

certain

retailers,

fintech

companies

and

digital

platforms.

The

Corporation’s

ability

to

compete

effectively

depends

on

the

relative

performance

of

its

products,

the

degree

to

which

the

features

of

its

products

22

appeal

to

customers,

and

the

extent

to

which

the

Corporation

meets

clients’

needs

and

expectations.

The

Corporation’s

ability

to

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

personnel, and on its reputation.

The

Corporation

encounters

intense competition

in attracting

and

retaining

deposits

and

in

its consumer

and

commercial

lending

activities. The

Corporation

competes for

loans with

other financial

institutions.

The Corporation’s

ability to

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,

adversely

affected

by

Puerto

Rico’s

economic

condition,

and

may

be

affected

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

significant

portion

of

our

business

activities

and

credit

exposure

is

concentrated

in

Puerto

Rico,

which

has

faced

prolonged

economic

and

fiscal

challenges.

Although

the

Puerto

Rico

Planning

Board

(“PRPB”)

reported

in

its

preliminary

estimates

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.

As of December 31,

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

property

taxes

in

such

amounts

as

are

required

for

the

payment

of

all

of

their

respective

general

obligation

bonds

and

notes. In

addition to

municipalities, the

total direct

exposure also

included $8.7

million in

a loan

extended to

an affiliate

of PREPA,

$32.9

million

in

loans

to

a

public

corporation

of

the

Puerto

Rico

government,

and

an

obligation

of

the

Puerto

Rico

government,

specifically

a

residential

pass-through

MBS issued

by

the PR

Housing

Finance

Authority

(“PRHFA”),

at

an

amortized

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

December

31,

2025,

the

outstanding

balance

of

construction

loans

funded

through

conduit

financing

structures

to

support the

federal programs

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

obligations

which

are

acquired

by

private

financial

institutions

and

are

required

to

co-underwrite

with

PRHFA

a

mirror

construction

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

addition,

as

of

December

31,

2025,

the

Corporation

had

$67.1

million

in

exposure

to

residential

mortgage

loans

guaranteed by the PRHFA.

The Corporation operates in various jurisdictions highly dependent

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

of

Management

and

Budget

(“OMB”)

issued

Memorandum

M-25-13

entitled

“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

financial

assistance,

and

other

relevant

agency

activities

that

may

be

implicated

by

executive

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

immediately

filed

and

on

January

28,

2025,

the

U.S.

District

Court

for

the

District of

Columbia

enjoined

the

Trump

administration

from

implementing

OMB Memorandum

M-25-13

for

disbursements

under

open

awards.

On

January

29,

2025,

OMB

rescinded

the

Memo,

however,

the

administration

has

continued

to

pursue

agency-by-

agency

reviews

of

federal

financial

assistance

programs

and

to

implement

targeted

funding

pauses,

terminations,

or

additional

compliance requirements

consistent with

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;

however,

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

economic

conditions,

delays

in

the

receipt

of

disaster

relief

funds

allocated

to

Puerto

Rico

or

any

temporary

or

permanent

pause on

any federal

funds,

and the

potential impact

on asset

values resulting

from past

or future

natural disaster

events,

when added

to Puerto

Rico’s

ongoing fiscal

challenges, could

materially adversely

affect our

business, financial

condition, liquidity,

results of operations and capital position.

23

A

deterioration

in

economic

conditions

in

the

U.S.

Virgin

Islands

and

British

Virgin

Islands

could

harm

our

results

of

operations.

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

December 31,

2025 and

2024, the

Corporation had

$138.7 million

and

$100.4

million, respectively,

in loans

to USVI

public corporations,

all of

which were

performing as

of that

date. However,

ongoing

fiscal and

economic

challenges in

the USVI

may

deteriorate

the overall

financial

and economic

conditions

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.

Although

the

current

U.S.

presidential

administration

and

federal

regulatory

agencies

have,

in

recent

years,

reduced

or

paused

certain

ESG-related

regulatory

initiatives,

including

the

SEC’s

decision

in

2025

to

withdraw

its

defense

of

federal

climate-related

disclosures, stakeholder expectations regarding ESG matters

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

practices

have increasingly

engaged in legislative,

regulatory,

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

comply with

regulatory

requirements

or

investor

or

stakeholder

expectations

and

standards

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

otherwise

do

business,

and

on

the

public’s

view

of

the

ESG-related

approach

and

performance

of

our

customers

and

business

partners.

Such negative

publicity

may

arise

from

adverse

coverage

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.

In addition,

we may

face criticism

from

ESG detractors

regarding

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

could be

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

and other

adverse weather

conditions; public

health crises;

political crises,

such as

terrorist

attacks, war,

labor unrest,

other political

instability,

trade

policies,

tariffs

and

sanctions,

including

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;

negative

global

climate

patterns,

especially

in

water

stressed

regions;

or

other

catastrophic

events,

such

as

fires

or

other

disasters

occurring at

our locations,

whether occurring

in Puerto

Rico, the

U.S., or

internationally,

could cause

a significant

adverse effect

on

the economy and disrupt

our operations. Certain

areas in which our

business is concentrated,

including Puerto Rico

and the USVI, are

particularly

susceptible

to

earthquakes,

hurricanes,

and

major

storms.

Further,

climate

change

may

increase

both

the

frequency

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

activities

of

our

customers.

The

Corporation

is

also

not

able

to

predict

the

positive

or

negative

effects

that

future events or

changes to

the U.S. or

global economy,

financial markets,

or regulatory and

business environment

could have

on our

operations.

Climate

change,

and

efforts

to

mitigate

its

long-term

effects,

may

materially

adversely

affect

the

Corporation’s

business

and

results of operations.

Concerns

regarding

the

long-term

effects

of

climate

change

have

led,

and

are

expected

to

continue

to

lead,

to

increased

governmental

efforts

worldwide

aimed

at

mitigating

climate-related

risks.

In

addition,

consumers

and

businesses

may

voluntarily

modify their

behavior, business

practices, and

investment decisions in

response to

these concerns. As

a result, the

Corporation and

its

customers

may

be

required

to

adapt

to

new

laws

and

regulations,

and

shifts

in

consumer

and

business

preferences

associated

with

climate

change.

These

developments

may

result

in

increased

costs,

asset value

reductions,

and

changes

to

operating

processes.

The

impact on

our customers

will likely

vary depending

on their

specific attributes,

including reliance

on our

role in

fossil fuel

activities.

The Corporation

may face

reductions in

creditworthiness on

the part

of some

customers or

in the

value of

assets securing

loans. The

Corporation’s

efforts

to

take these

risks

into

account in

making

lending and

other decisions,

including

increasing

our business

with

climate-responsible

companies,

may

not

be

effective

in

protecting

the

Corporation

from

the

negative

impact

of

new

laws

and

regulations or changes in consumer or business behavior.

24

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

commercial and

construction loan

portfolio held

for investment

in the

amount of

$6.5 billion

as of

December 31,

Due to

their nature,

these loans

entail a

higher credit

risk than

consumer and

residential mortgage

loans, since

they are larger

in size,

concentrate

more

risk

in

a

single

borrower

and

are

generally

more

sensitive

to

economic

downturns.

Furthermore,

in

the

case

of

a

slowdown

in the

real estate

market,

it may

be difficult

to dispose

of the

properties

securing

these loans

upon any

foreclosure

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

recognition

of

losses. Any

such

losses

could

adversely

impact

our

overall

financial performance and results of operations.

Deterioration

of

the

value

of

real

estate

collateral

securing

our

construction

and

commercial

loan

portfolios,

whether

located

in

Puerto Rico

or elsewhere,

would result

in increased

credit losses.

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

losses for

collateral dependent

loans based

on the

fair value

of the

collateral, which

is generally

obtained from

appraisals, adjusted

for undiscounted

selling costs

as appropriate.

Updated appraisals

are obtained

when we

determine that

loans are

collateral

dependent

and

are

updated

annually

thereafter.

In

addition,

appraisals

are

also

obtained

for

certain

residential

mortgage

loans on a spot

basis based on specific

characteristics, such as delinquency

levels, and age of

the appraisal. The appraised

value of the

collateral may decrease, or we may

not be able to recover collateral at

its appraised value. A significant decline

in collateral valuations

for

collateral

dependent

loans

has

required

and,

in

the

future,

may

require,

increases

in

our

credit

loss

expense

on

loans. Any

such

increase would have an adverse effect on our future financial condition

and results of operations.

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

commercial

clients, contributing

to operational

disruptions,

supply

chain

constraints,

reduced

cash flow,

and

potential difficulties

in

meeting

loan

obligations.

These

labor

market

pressures

also

affect

the

Corporation’s

own

operations.

Competition

for

skilled

and

experienced

personnel

remains

intense,

and

rising

wages,

driven

in

part

by

inflation

and

heightened

employee

expectations,

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

materially

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

of other

financial institutions.

Financial institutions

are interrelated as

a result of

trading, clearing,

counterparty

and

other relationships.

We

have

exposure

to different

industries

and

counterparties

and

routinely

execute

transactions

with counterparties

in the financial

services industry,

including brokers

and dealers,

commercial banks,

investment banks,

investment

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

experience

delays in recovering

the assets posted as

collateral, or we

may incur a

loss to the extent

that the counterparty

was holding collateral

in

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

In addition, many of these transactions

expose us to credit risk in

the event of a default by our

counterparty or client. The credit

risk

may be exacerbated when

the collateral held by us cannot

be realized or is liquidated

at prices not sufficient

to recover the full amount

of the loan

or derivative

exposure due to

us. Any losses

resulting from

our routine funding

transactions may

materially and adversely

affect our financial condition and results of operations.

RISKS RELATING TO

THE CORPORATION’S

BUSINESS

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

prove insufficient and/or costly to replace.

FirstBank

relies

primarily

on

customer

deposits,

the

issuance

of

brokered

CDs,

and

advances

from

the

FHLB

of

New

York

to

maintain its lending

activities and to replace

certain maturing liabilities.

As of December 31,

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

25

over the twelve months

ending December 31, 2025, and

the average remaining term to

maturity of the brokered CDs outstanding

as of

December 31, 2025

was approximately 1.0

year. None

of these brokered

CDs are callable at

the Corporation’s

option. In addition,

the

Corporation had

$290.0 million

of long-term

FHLB advances

outstanding as

of December

31, 2025,

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

currently

utilized.

If

we

are

required

to

rely

heavily

on

more

expensive funding sources, profitability would be adversely affected.

We

may

determine

to

seek

debt

financing

in

the

future

to

achieve

our

long-term

business

objectives.

Additional

borrowings,

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

factors,

such

as

market

conditions,

the

general

availability

of

credit,

our

credit

ratings

and

our

credit

capacity.

In

addition,

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

Corporation’s

ability to

access new

non-deposit

sources of

funding

could be

adversely

affected

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

Corporation’s

current credit

ratings and

any downgrades

in such

credit ratings

can hinder

the Corporation’s

access to

new

forms

of

external

funding

and/or

cause

external

funding

to

be

more

expensive,

which

could

in

turn

adversely

affect

results

of

operations.

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

interest

payments

on

our

obligations.

FirstBank

is

limited

by

law

in

its

ability

to

make

dividend

payments

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

condition.

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

operations.

Although non-performing

assets decreased by

$4.2 million to $114.1

million as of December

31, 2025, or 4%,

from $118.3

million

as of

December

31,

2024,

we continue

to

have

a

relevant

amount

of

nonaccrual

loans.

If

we

are

unable

to

effectively

maintain

the

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

may be materially and adversely affected.

Our

ACL

may

not

be

adequate

to

cover

actual

losses,

and

we

may

be

required

to

materially

increase

our

ACL,

which

may

adversely affect our capital ratios, financial condition and results of

operations.

We are subject, among

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

foreclosures with respect to the loans we originate and

purchase.

We

recognize

periodic credit

loss expenses

on loans,

which

lead to

reductions in

our

income from

operations,

in order

to

maintain

our ACL

on loans

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

credit loss

expense

on

loans in

the

future as

a

result

of

new

information

regarding

existing

loans,

future

increases

in

nonaccrual

loans

beyond

what

was

forecasted,

foreclosure

actions

and

loan

modifications,

changes

in

current

and

expected

economic

and

other

conditions

affecting

borrowers

or

for

other

reasons

beyond

our

control.

In

addition,

the

bank

regulatory

agencies

periodically

review

the

adequacy

of

our

ACL

on

loans

and

may

require

an

increase

in

the

credit

loss

expense

on

loans

or

the

recognition

of

additional

classified loans and loan charge-offs, based on

judgments that differ from those of management.

The level

of the

ACL reflects

management’s

estimates based

upon various

assumptions and

judgments as

to specific

credit risks;

evaluation of

industry concentrations;

loan loss

experience; current

loan portfolio

quality; present

economic, political

and

regulatory

conditions;

unidentified

losses inherent

in the

current

loan portfolio

and reasonable

and supportable

forecasts. The

determination

of

the

appropriate

level

of

the

ACL

on

loans

inherently

involves

a

high

degree

of

subjectivity

and

requires

management

to

make

significant estimates and judgments

regarding current credit risks

and future trends, all

of which may undergo

material changes. If our

estimates

prove

to

be

incorrect,

our

ACL

on

loans

may

not

be

sufficient

to

cover

losses

in

our

loan

portfolio

and

our

credit

loss

expense on loans could increase substantially.

26

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

and results of operations.

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

In

connection

with

the

sale

and

securitization

of

loans,

we

are

required

to

make

a

variety

of

customary

representations

and

warranties relating

to the

loans sold

or securitized.

Our obligations

with respect

to these

representations and

warranties are

generally

outstanding

for

the

life

of

the

loan,

and

relate

to,

among

other

things,

the

following:

(i)

compliance

with

laws

and

regulations;

(ii)

underwriting

standards;

(iii)

the

accuracy

of

information

in

the

loan

documents

and

loan

files;

and

(iv)

the

characteristics

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

third-party

financing

for

the

loan,

and

may

not

be

saleable

or

may

be

saleable

only

at

a

significant

discount.

If

such a

loan

is

sold

before

we

detect

non-compliance,

we

may

be

obligated

to repurchase

the

loan

and

bear

any

associated

loss directly,

or

we

may

be

obligated

to

indemnify

the purchaser

against

any

loss,

either

of

which

could

reduce

our cash

available

for

operations

and

liquidity.

Management

believes

that

it has

established

controls

to

ensure

that

loans

are

originated

in

accordance

with

the

secondary

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

results of operations.

We

may fail to

identify and manage

risks related to a

variety of aspects

of our business, including,

but not limited

to, liquidity risk;

interest rate

risk; market

risk; credit

risk; operational

risk; legal,

regulatory and

compliance risk;

reputational risk;

model risk;

capital

risk;

strategic

risk;

and

information

technology

and cybersecurity

risk.

We

have

adopted

and

periodically

improve

various

controls,

procedures,

policies and

systems to

monitor

and

manage risk.

Any improvements

to our

controls,

procedures,

policies

and

systems,

however,

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

disruptions

to

operational

functions,

including

information

processing

and

financial

market

settlement

functions.

In

addition,

our

customers,

vendors

and

counterparties

could

suffer

from

such

events.

Should

these

events

affect

us,

or

the

customers,

vendors

or

counterparties with

which we

conduct business,

our consolidated

results of

operations could

be negatively

affected.

When we

record

balance

sheet

reserves

for

probable

loss

contingencies

related

to

operational

losses,

we

may

be

unable

to

accurately

estimate

our

potential

exposure,

and

any

reserves

we

establish

to

cover

operational

losses

may

not

be

sufficient

to

cover

our

actual

financial

exposure, which

may have

a material

impact on

our consolidated

results of

operations or

financial condition

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

securities

class

action

litigation

by

our

shareholders

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

liability

or

an

adverse

effect

on

our

reputation

among

investors

or

on

customer

demand

for

our

products

and

services.

A

securities

class

action

suit

against

us

in

the

future

could

result

in

substantial

costs,

potential

liabilities

and

the

diversion

of

management’s

attention

and

resources.

We

may

be

unable

to

accurately

estimate

our

exposure

to

litigation

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

financial

exposure,

which

has

occurred

in

the

past

and

may

occur

in

the

future,

resulting

in

a

material

adverse

impact on our consolidated results of operations or financial condition.

In

the

ordinary

course

of

our

business,

we

are

also

subject

to

various

regulatory,

governmental

and

law

enforcement

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,

and could

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.

27

Our businesses may be negatively affected by adverse publicity or

other reputational harm.

Our relationships

with many of

our customers

are predicated upon

our reputation

as a fiduciary

and a service

provider that adheres

to

the

highest

standards

of

ethics,

service

quality

and

regulatory

compliance.

Adverse

publicity,

regulatory

actions,

litigation,

operational failures, the failure to meet customer expectations and other

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

FirstBank as our banking

subsidiary, could

materially and adversely affect

our reputation, or our ability

to attract and retain customers

or obtain

sources of

funding for

the same

or other

businesses. Preserving

and enhancing

our reputation

also depends

on maintaining

systems and procedures that

address known risks and regulatory

requirements, as well as our

ability to identify and mitigate

additional

risks

that

arise

due

to

changes

in

our

businesses,

the

market

places

in

which

we

operate,

the

regulatory

environment

and

customer

expectations.

If we

fail to

promptly address

matters that

bear on

our reputation,

our reputation

may be

materially adversely

affected

and our business may suffer.

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

our operating results.

We

review

goodwill

for

impairment

annually

and

assess

other

intangible

assets

whenever

events

or

changes

in

circumstances

indicate that their

carrying amount may

not be recoverable. If

goodwill or other

intangibles are determined

to be impaired, we

may be

required

to record

a charge

to earnings.

Impairment risk

factors include

deterioration

in financial

performance

of the

reporting unit,

declining

market valuation

of the

Corporation or

comparable institutions,

and adverse

economic conditions

impacting expected

cash

flows. During

the fourth

quarter of

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

December

31,

2025,

our

goodwill

book

value

was

$38.6

million,

all

recorded

at

FirstBank.

Future

goodwill

impairments

could

reduce

earnings

and

affect

FirstBank’s

ability

to

pay

dividends

to

the

Corporation,

subject

to

regulatory

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

December

31,

2025,

the Corporation

had

a net

deferred

tax asset

of

$149.0

million

(net of

a

valuation

allowance

of $75.0

million,

of

which

$72.2

million

was

related

to

FirstBank).

Under

the

PR

Tax

Code,

the Corporation

and

its

subsidiaries,

including

FirstBank, are treated

as separate taxable

entities and are

not entitled to file

consolidated tax returns.

Accordingly,

in order to

obtain a

tax

benefit

from

a

NOL,

a

particular

subsidiary

must

be

able

to

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

Pursuant to

the

PR

Tax

Code,

the

carry-forward

period

for

NOLs

incurred

during

taxable

years commencing

after December

31, 2012

is 10

years. The

Corporation assesses

deferred

tax assets

to determine

the amount

that is

more-likely-than-

not

to

be

realized.

Valuation

allowances

are

established,

when

necessary,

to

reduce

deferred

tax

assets

to

such

amount.

Due

to

significant

estimates

utilized

in determining

the valuation

allowance

and

the potential

for changes

in facts

and circumstances

in

the

future, the

Corporation may

not be able

to reverse

the remaining

valuation allowance

or may

need to increase

its current

deferred tax

asset valuation allowance.

The

Corporation’s

judgments

regarding

tax

accounting

policies

and

the

resolution

of

potential

tax

disputes

may

impact

the

Corporation’s

earnings and

cash flow,

and changes

in the

tax laws

of multiple

jurisdictions can

materially affect

our operations,

tax obligations, and effective tax rate.

Significant

judgment

is

required

in

determining

the

Corporation’s

effective

tax

rate

and

in

evaluating

its

tax

positions.

The

Corporation

provides

for

uncertain

tax

positions

when

such

tax

positions

do

not

meet

the

recognition

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

the Corporation’s

effective tax

rate. When particular

tax matters arise,

a number

of years may

elapse before such

matters

are audited

and finally

resolved. In

addition,

the Puerto

Rico Department

of Treasury

(“PRTD”),

the U.S.

Internal

Revenue Service

(“IRS”),

and

the

tax

authorities

in

the

jurisdictions

in

which

we

operate

may

challenge

our

tax

positions

and

we

may

estimate

and

provide

for

potential liabilities

that may

arise out

of tax

audits to

the extent

that uncertain

tax positions

fail to

meet the

recognition

standard under

applicable GAAP.

Unfavorable resolution

of any

tax matter

could increase

the effective

tax rate

and could

result in

a

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

the use of cash in the year of resolution.

First BanCorp. is subject

to Puerto Rico income

tax on its income

from all sources. FirstBank

is treated as a

foreign corporation for

U.S. and USVI income

tax purposes and is generally

subject to U.S. and

USVI income tax only

on its income from

sources within the

U.S. and

USVI or

income effectively

connected with

the conduct

of a

trade or

business in

those jurisdictions.

The USVI

jurisdiction

imposes

income

taxes

based

on

the

U.S.

Internal

Revenue

Code

under

the

“mirror

system”

established

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.

28

These

tax

laws

are

complex

and

subject

to

different

interpretations.

We

must

make

judgments

and

interpretations

about

the

application

of

these

inherently

complex

tax

laws

when

determining

our

provision

for

income

taxes,

our

deferred

tax

assets

and

liabilities, and

our valuation

allowance. In

addition, legislative

changes, particularly

changes in

tax laws,

could adversely

impact our

results of operations.

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.

The Corporation

has U.S.

and USVI

sourced NOL

carryforwards. Section

382 of

the U.S.

Internal Revenue

Code (“Section

382”)

limits the

ability to

utilize U.S.

and USVI

NOLs for income

tax purposes,

respectively,

at such

jurisdictions following

an event

of an

ownership

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

is subject

to limitations

and

only a

portion

of

the

U.S.

and

USVI

NOLs,

as

applicable,

may

be

used

by

the

Corporation

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.

and USVI

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

outstanding

shares

or

issuances

of

new

shares

that

could

separately

or

cumulatively

trigger

an

ownership

change

and,

consequently,

a

Section

382

limitation.

Any

further

Section

382

limitations

may

result

in

greater

U.S.

and

USVI tax

liabilities

than

we would

incur

in the

absence

of such

a limitation

and

any

increased liabilities

could

adversely affect

our

earnings and cash

flow.

We

may be able to

mitigate the adverse

effects associated with

a Section 382

limitation in the U.S.

and USVI

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

liability

through

such

a

credit

or

deduction

will

depend

on

our

tax

profile

at

each

annual

taxable period, which is dependent on various factors.

The

utilization

of

our

NOL

carryforwards

is

subject

to

significant

judgment

and

depends

on

future

taxable

income

and

the

continued

applicability

of

current

tax

laws.

Although

we

reversed

a

portion

of

our

valuation

allowance

in

2025

following

the

enactment of

Act 65-2025,

future changes

in tax

laws or

sustained losses

at the

holding company

or pass-through

entity level,

could

limit

our

ability

to

utilize

these

NOLs,

require

the

reestablishment

of

a

valuation

allowance,

or

result

in

the

expiration

of

unused

NOLs.

RISKS RELATING TO

CYBERSECURITY AND TECHNOLOGY

Cyber-attacks,

system

risks

and

data

security

breaches

to

our

computer

systems

and

networks

or

those

of

third-party

service

providers could adversely

affect our

ability to conduct

business, manage our

exposure to risk

or expand our

business, result in

the

disclosure

or

misuse

of

confidential

or

proprietary

information,

increase

our

costs

to

maintain

and

update

our

operational

and

security systems and infrastructure, and present significant reputational, legal

and regulatory costs.

Our

business

is

highly

dependent

on

the

security,

reliability,

and

effectiveness

of

our

technology

infrastructure

and

data

management

systems,

as

well

as

those

of

our

customers,

vendors,

and

other

third

parties.

Employees,

customers,

and

other

third

parties

increasingly

access

our

systems

and

services

through

personal

or

external

devices

and

networks

that

are

outside

our

direct

control

and

subject

to

their

own

cybersecurity

risks.

Our

business

relies

on

effective

access

controls

and

the

secure

collection,

processing,

transmission,

storage

and

retrieval

of

confidential,

proprietary,

personal

and

other

information

across

our

systems

and

those of third parties.

Cybersecurity

risks

facing

financial

institutions

have

increased

significantly

due

to

the

growing

sophistication

and

frequency

of

cyber

threats,

as

well

as

our

continued

expansion

of

digital

and

online

services.

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

information,

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

to our services.

While

we

maintain

a

CISP

that

continuously

monitors

cyber-related

risks

and

ultimately

ensures

protection

for

the

processing,

transmission,

and

storage

of

confidential,

proprietary,

and

other

information

in

our

computer

systems

and

networks,

as

well

as

a

Vendor

Management

Program

to

oversee

third

party

and

vendor

risks,

there

is

no

guarantee

that

we

will

not

be

exposed

to

or

be

affected by a cybersecurity incident.

29

Cyber threats are rapidly

changing, and future attacks or

breaches could lead to

other security breaches of

the networks, systems, or

devices that

our customers

use to

access our

integrated products

and services,

which, in

turn, could

result in

unauthorized disclosure,

release, gathering,

monitoring, misuse,

loss or

destruction of

confidential, proprietary,

and other

information (including

account data

information) or

data security

compromises. As

cyber threats

continue to

evolve, we

may be

required to

expend significant

additional

resources

to

modify

or

enhance

our

protective

measures,

investigate,

and

remediate

any

information

security

vulnerabilities

or

incidents

and

develop

our

capabilities

to

respond

and

recover.

The

scope

and

impact

of

a

particular

cyberattack

may

not

be

immediately

clear,

which

could

delay

remediation

efforts

and

limit

our

ability

to

provide

complete

and

accurate

information

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

operational

or

security

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

results of

operations, liquidity,

and financial

condition,

as well as cause legal or reputational harm.

Operational

risk is

inherent

in our

business and

extends

beyond

our internal

operations due

to our

reliance

on third-party

service

providers.

Our

performance

depends

on

the

effectiveness,

reliability,

and

security

of

our

operational

and

technology

infrastructure,

including

computer

systems,

data

management,

transaction

processing,

information

security,

online

and

mobile

banking

platforms,

and

network connectivity,

as well

as those

of third

parties that

support

critical business

functions.

Failures or

disruptions

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

service providers

may

be damaged,

disrupted,

or rendered

unavailable

as a

result

of a

number

of

factors, including

events that

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

the same

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

cybersecurity

threats. These

efforts

may

involve

significant

costs and

risks

associated

with

system

implementation,

and

integration,

and

may

result

in

potential

business

interruptions.

Operational

failures

or

significant

disruptions

could

adversely

impact

our

operations,

liquidity,

and

financial

condition,

as

well

as

cause

reputational

harm.

In

addition,

our

insurance

coverage

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

financial

institutions,

FirstBank

significantly

depends

on

technology

to

deliver

its

products

and

other

services

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

continue

to

enhance

and

improve

the

functionality

and

features

of

our

products,

services

and

technologies. These changes may be more difficult or expensive

to implement than we anticipate.

We

may

not

be

able

to

effectively

implement

new

technology-driven

products

and

services

or

be

successful

in

marketing

these

products and

services to our

customers. Failure to

effectively respond

to technological change

in the financial

services industry

could

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

and results of operations.

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.

Similarly,

distributed

ledger

and

blockchain-based

technologies

may

enhance

transaction

efficiency

and

security,

but

over

time

could

reduce

the

role

of

banks

as

secure

deposit-keepers

and

intermediaries.

The

continued

adoption of these and other emerging technologies could materially

and adversely affect our business and results of operations.

30

The Corporation is subject

to stringent and changing

privacy laws, regulations,

and standards as well

as policies, contracts, and

other

obligations

related

to

data

privacy

and

security.

Our

failure

to

comply

with

privacy

laws and

regulations,

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

regulations

governing

the

collection,

use,

retention,

sharing, transfer,

and security

of personally

identifiable information

and data.

A variety

of federal,

state, local,

and foreign

laws and

regulations,

orders,

rules,

codes,

regulatory

guidance,

and

certain

industry

standards

regarding

privacy,

data

protection,

consumer

protection,

information

security,

and

the

processing

of

personal

information

and

other

data

apply

to

our

business.

State

laws

are

changing

rapidly,

and

new

legislation

proposed

or

enacted

in

a

number

of

other

states

imposes,

or

has

the

potential

to

impose,

additional obligations

on companies

that process

confidential, sensitive

and personal

information, and

will continue

to shape

the data

privacy

environment

nationally.

The U.S.

federal

government

is also

focused

on privacy

matters. Any

failure

by us

or our

business

partners

to

comply

with

applicable

laws,

rules,

and

regulations

could

result

in

investigations

or

actions

against

us

by

governmental

entities,

private

claims

and

litigation,

fines,

penalties

or

other

liabilities.

Such

outcomes

could

increase

our

expenses,

expose

us

to

liabilities, and harm

our reputation,

and have

a material adverse

effect on

our business. While

we aim to

comply with

applicable data

protection

laws

and

obligations

in

all

material

respects,

there

is

no

assurance

that

we

will

not

be

subject

to

claims

that

we

have

violated such

laws and

obligations, will

be able

to successfully

defend against

such claims,

or will

not be

subject to

significant fines

and

penalties

in

the

event

of

non-compliance.

Additionally,

to

the

extent

multiple

state-level

laws

are

introduced

in

the

U.S.

with

inconsistent or

conflicting

standards and

there is

no federal

law to

preempt such

laws, compliance

with such

laws could

be difficult

and costly, or impossible, to

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

-compliance.

In

addition,

the

U.S.

regulatory

environment

for

financial

services

remains

subject

to

change.

Legislative,

regulatory,

or

administrative actions may result

in amendments to existing

banking and consumer protection

laws, modifications to prior

rulemaking

or

guidance,

or

changes

to

the

structure,

authority,

or

enforcement

priorities

of

federal

regulatory

agencies.

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

are subject

to supervision

and regulation

by the

Federal Reserve

Board and

the FDIC.

We

are a

bank holding

company and

a

financial holding

company under

the Bank

Holding Company

Act of

1956, as

amended. The

Bank is

also subject

to supervision

and

regulation by OCIF.

Under

federal

law,

financial

holding

companies

are

permitted

to

engage

in

a

broader

range

of

“financial”

activities

than

those

permitted

to

bank

holding

companies

that

are

not

financial

holding

companies.

A

financial

holding

company

that

ceases

to

meet

certain

standards

is

subject

to

a

variety

of

restrictions,

depending

on

the

circumstances,

including

the

prohibition

from

undertaking

new activities

or acquiring

shares or

control of

other companies.

If we

fail to

comply with

the requirements

from our

regulators,

we

may

become

subject

to

regulatory

enforcement

action

and

other

adverse

regulatory

actions

that

might

have

a

material

and

adverse

effect on our operations.

The FDIC

insures deposits

at FDIC-insured

depository

institutions up

to certain

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,

the FDIC

takes control

of a

failed bank

and, if

necessary,

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

assessments

to

maintain

such

funding.

The

Dodd-Frank

Wall

Street

Reform

and

Consumer

Protection

Act

(the

“Dodd-Frank

Act”)

requires

the

FDIC

to

increase

the

DIF’s

reserves

against

future

losses,

which

will

require

institutions

with

assets

greater

than

$10

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

the prescribed reserve to support the DIF.

The FDIC

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

compensation

practices

are

subject

to

oversight

by

the

Federal

Reserve

Board

and

the

FDIC.

Any

deficiencies

in

our

compensation

practices

may

be

incorporated

into

our

supervisory

ratings,

which

can

affect

our

ability

to

make

acquisitions

or

perform other actions.

Our compensation

practices are

subject to

oversight

by the

Federal

Reserve

Board

and

the FDIC.

As discussed

in Part

I, Item

1,

“Business” of this

Form 10-K,

the Corporation

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

regarding

compensation

practices.

Our

failure

to

satisfy

these

restrictions

and

guidelines

could

expose

us

to

adverse

regulatory

criticism,

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

31

We

are

subject

to

regulatory

capital

adequacy

guidelines,

and,

if

we

fail

to

meet

these

guidelines,

our

business

and

financial

condition will be adversely affected.

We

are

subject

to

stringent

regulatory

capital requirements.

Although

the

Corporation

and FirstBank

met

well-capitalized

capital

ratios as

of December

31, 2025,

and we

expect both

companies will

continue to

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

guidelines

and

other

regulatory

requirements,

our

business

and

financial

condition

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

policies

and

regulations

of

the

Federal

Reserve

Board

could

adversely

affect

our

business,

financial

condition

and

results of operations.

In

addition

to

general

economic

conditions,

our

earnings

and

growth

are

significantly

influenced

by

the

monetary

policies

and

regulatory actions of

the Federal Reserve

Board. An important

function of the

Federal Reserve Board

is to regulate

the money supply

and

credit

conditions.

The

Federal

Reserve

Board

implements

policy

through

various

tools,

including

open

market

operations,

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

economic

growth

and

the

distribution

of

credit,

bank

loans,

investments

and

deposits.

Their use also affects interest rates charged on

loans or paid on deposits.

Changes

in

monetary

policies

and

regulatory

actions

of

the

Federal

Reserve

Board

have

had,

and

may

continue

to

have,

a

significant

impact

on the

operating results

of commercial

banks.

The effects

of such

policies upon

our

business, financial

condition

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

the future.

We

are subject

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

Community

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.

Department

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,

including

damages

and

civil

money

penalties,

injunctive

relief,

and

restrictions

on

mergers

and

acquisitions,

expansion,

or

entry

into

new

business

lines.

Private

parties

may

also

have

the

ability

to

challenge

an

institution’s

performance

under

fair

lending

laws

in

private

class

action

litigation.

Such

actions

could

have

a

material

adverse

effect

on

our

business, financial condition, and results of operations.

We

face

a

risk

of

noncompliance

and

enforcement

action

related

to

the

Bank

Secrecy

Act

and

other

anti-money

laundering

statutes and regulations.

The Bank

Secrecy Act,

the USA PATRIOT

Act, and

related regulations

require us

to maintain

an effective

anti-money laundering

program

and

file

suspicious

activity

and

currency

transaction

reports

as

appropriate,

among

other

duties.

Enforcement

agencies,

including

the

Financial

Crimes

Enforcement

Network,

federal

banking

regulators,

and

the

U.S.

Department

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

dividends

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.

32