Net income of $79.5 million, or $0.46 per diluted share, for the fourth quarter of 2023, compared to $82.0 million, or $0.46 per diluted share, for the third quarter of 2023. Net income of $302.9 million, or $1.71 per diluted share, for the year ended December 31, 2023, compared to $305.1 million, or $1.59 per diluted share, for the year ended December 31, 2022. Net income for the quarter and year ended December 31, 2023 included a one-time Federal Deposit Insurance Corporation ("FDIC") special assessment expense of $6.3 million ($3.9 million after-tax, or a decrease of $0.03 per diluted share).
Return on average assets for the fourth quarter of 2023 was 1.70%, compared to 1.72% for the third quarter of 2023. Return on average assets for the year ended December 31, 2023 was 1.62%, compared to 1.57% for the year ended December 31, 2022.
Income before income taxes of $84.9 million for the fourth quarter of 2023, compared to $109.0 million for the third quarter of 2023. Income before income taxes of $397.4 million for the year ended December 31, 2023, compared to $447.6 million for the year ended December 31, 2022.
On a non-GAAP basis, adjusted pre-tax, pre-provision income of $110.0 million for the fourth quarter of 2023, compared to pre-tax, pre-provision income of $113.4 million for the third quarter of 2023. Adjusted pre-tax, pre-provision income of $459.5 million for the year ended December 31, 2023, compared to pre-tax, pre-provision income of $475.3 million for the year ended December 31, 2022.
Net interest income of $196.7 million for the fourth quarter of 2023, compared to $199.7 million for the third quarter of 2023. The decrease includes an increase in interest expense, particularly in time deposits, coupled with a reduction in average interest-earning assets, partially offset by an increase in the yields of the loan portfolio. In addition, the third quarter of 2023 included $1.2 million of interest income recognized on the collection of a previously charged-off construction loan. Net interest margin remained relatively flat at 4.14% for the fourth quarter of 2023, compared to 4.15% for the third quarter of 2023.
Provision for credit losses increased to $18.8 million for the fourth quarter of 2023, compared to $4.4 million for the third quarter of 2023. The increase is related to various factors, including increases in volume across all loan portfolio classes and higher charge-off levels, particularly in the consumer loan and finance lease portfolios, partially offset by improvements in the projection of certain macroeconomic variables, such as the commercial real estate price index ("CRE price index"). The ratio of the allowance for credit losses ("ACL") for loans and finance leases to total loans held for investment was 2.15% as of December 31, 2023, compared to 2.21% as of September 30, 2023.
Non-interest income increased to $33.6 million for the fourth quarter of 2023, compared to $30.3 million for the third quarter of 2023, mainly related to a $3.0 million gain recognized on the sale of a banking premise in the Florida region.
Non-interest expenses increased by $10.0 million to $126.6 million for the fourth quarter of 2023, compared to $116.6 million for the third quarter of 2023, mainly driven by the aforementioned FDIC deposit special assessment. The efficiency ratio for the fourth quarter of 2023 was 54.98%, compared to 50.71% for the third quarter of 2023. On a non-GAAP basis, excluding the aforementioned FDIC deposit special assessment, the adjusted efficiency ratio for the fourth quarter of 2023 was 52.24%.
Income tax expense decreased to $5.4 million for the fourth quarter of 2023, compared to $27.0 million for the third quarter of 2023. The decrease is mainly related to a lower effective tax rate and lower pre-tax income.
Credit quality variances:

- Non-performing assets decreased by $4.3 million to $125.9 million as of December 31, 2023, mainly driven by the commercial and construction loan portfolios, which includes $7.7 million in collections and loans returned to accrual status and $1.5 million in charge-offs, partially offset by a $3.3 million increase in consumer loans, mainly auto loans and finance leases, and a $1.1 million increase in other repossessed automobiles.

- Annualized net charge-offs to average loans ratio increased to 0.69% for the fourth quarter of 2023, compared to 0.48% for the third quarter of 2023, mainly driven by a $4.6 million increase in consumer loans, a $1.4 million recovery recorded on a construction loan in the Puerto Rico region during the third quarter of 2023, and a $1.0 million charge-off recorded on a nonaccrual commercial mortgage loan transferred to other real estate owned ("OREO") during the fourth quarter of 2023.

Total loans increased by $233.0 million from the prior quarter to $12.2 billion as of December 31, 2023. On a portfolio basis, the variance consisted of increases of $156.3 million in commercial and construction loans, $69.2 million in consumer loans, primarily auto loans and finance leases, and $7.5 million in residential mortgage loans. In terms of geography, the total loan growth consisted of increases of $254.0 million in the Puerto Rico region and $1.4 million in the Virgin Islands region, partially offset by a decrease of $22.4 million in the Florida region. The increase in commercial and construction loans in the Puerto Rico region includes a $150.0 million commercial and industrial participated loan funded in the fourth quarter in connection with the financial closing of a private-public private partnership (P3) for improvement of infrastructure for toll roads.
Total loan originations, including refinancings, renewals, and draws from existing commitments (other than credit card utilization activity), amounted to $1.3 billion in the fourth quarter of 2023, an increase of $116.5 million compared to the third quarter of 2023. The growth in total loan originations consisted of an increase of $162.5 million in commercial and construction loans, which includes the origination of the aforementioned $150.0 million commercial and industrial participated loan, partially offset by declines of $27.6 million in residential mortgage loans and $18.4 million in consumer loans.
Brokered certificates of deposit ("brokered CDs") increased by $473.0 million during the fourth quarter of 2023 to $783.3 million as of December 31, 2023, which represents 4.7% of total deposits.
Excluding brokered CDs and government deposits, total deposits decreased by $261.9 million to $12.6 billion as of December 31, 2023, reflecting declines of $202.8 million in the Puerto Rico region, $42.8 million in the Florida region, and $16.3 million in the Virgin Islands region. This decrease is net of a $79.8 million increase in time deposits.
Government deposits, which are fully collateralized, decreased in the fourth quarter of 2023 by $90.4 million and totaled $3.2 billion as of December 31, 2023. The variance reflects reductions of $57.0 million in the Puerto Rico region, $31.3 million in the Virgin Islands region, and $2.1 million in the Florida region.
Cash and cash equivalents increased to $663.2 million as of December 31, 2023, compared to $584.9 million as of September 30, 2023. When adding $2.2 billion of free high-quality liquid securities that could be liquidated or pledged within one day, total core liquidity amounted to $2.8 billion as of December 31, 2023, or 14.93% of total assets, compared to 14.58% as of September 30, 2023. Including the $924.2 million in available lending capacity at the Federal Home Loan Bank ("FHLB"), available liquidity amounted to 19.82% of total assets as of December 31, 2023, compared to 19.67% as of September 30, 2023.
In 2023, the Corporation returned approximately $300 million, or close to 100%, of 2023 earnings, to its shareholders through $200 million in repurchases of common stock and the payment of $100 million in common stock dividends.
Capital ratios exceed required regulatory levels for bank holding companies and well-capitalized banks. The Corporation's estimated total capital, common equity tier 1 ("CET1") capital, tier 1 capital, and leverage ratios were 18.57%, 16.10%, 16.10%, and 10.78%, respectively, as of December 31, 2023. On a non-GAAP basis, the tangible common equity ratio increased to 7.67% as of December 31, 2023, from 6.74% as of September 30, 2023 driven by an increase in the fair value of available-for-sale debt securities.

First BanCorp. (the "Corporation" or "First BanCorp.") (NYSE:FBP), the bank holding company for FirstBank Puerto Rico ("FirstBank" or "the Bank"), today reported a net income of $79.5 million, or $0.46 per diluted share, for the fourth quarter of 2023, compared to $82.0 million, or $0.46 per diluted share, for the third quarter of 2023, and $73.2 million, or $0.40 per diluted share, for the fourth quarter of 2022.

For the year ended December 31, 2023, the Corporation reported net income of $302.9 million, or $1.71 per diluted share, compared to $305.1 million, or $1.59 per diluted share, for the year ended December 31, 2022.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: "We closed an unprecedented and challenging year for the banking industry with another quarter of strong financial performance and solid loan growth for our franchise. We delivered a 1.70% return on average assets, grew loans by $233.0 million or 7.8% linked quarter annualized, and decreased non-performing assets to just 0.67% of total assets. Core deposits, other than government and brokered, contracted by 2.0% as we continue to see use of excess liquidity across all market segments. We are very fortunate to have the support of our loyal client base and the commitment from all our service-oriented colleagues during this period and as we continue to capitalize on the stable economic environment of our main operating markets."

Alemán continued: "Over the course of 2023, we continued to deploy our capital wisely while selectively growing the loan portfolio, proactively managing the acceleration in funding costs, and executing on multiple franchise investments. Total loans grew by $627.7 million, or 5.4%, during the year driven by strong commercial and consumer loan originations, and we expect that a significant portion of unfunded construction loan originations will be disbursed during 2024. Franchise investments continue to enable the achievement of our strategic objectives. We grew digital banking registered users by 14%, deployed multiple enhancements to both our physical and information technology infrastructure, and advanced several process improvement initiatives aimed at supporting business goals and increase efficiency across the organization. For the third consecutive year, we distributed close to 100% of earnings to shareholders in the form of cash dividends and share repurchases, while maintaining robust regulatory capital levels and ample liquidity.

"As we look forward to 2024, additional investments will be geared towards simplifying our commercial lending process and enhancing the resiliency of the franchise, while continuing to expand our digital offerings. Although we are seeing an expected correction in the credit cycle of the consumer lending business driven by lower levels of excess liquidity and inflationary pressures, our ample reserve coverage levels and risk management framework should withstand the impact of any additional credit deterioration over the next year. That said, we remain confident that the economic prospects of our primary market, driven by a strong labor market and an unprecedented level of federal support, should also serve as a mitigant.

Alemán concluded: "Finally, while we don't manage the organization based on short-term stock price fluctuations, we do believe that our 2023 stock price performance is a clear reflection of the strength of our balance sheet and our growth prospects for the coming years. We thank our shareholders for their support and remain committed to delivering consistent results."

NON-GAAP DISCLOSURES

This press release contains GAAP financial measures and non-GAAP financial measures. Non-GAAP financial measures are used when management believes that the presentation of these non-GAAP financial measures enhances the ability of analysts and investors to analyze trends in the Corporation's business and understand the performance of the Corporation. The Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process. Where non-GAAP financial measures are used, the most comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the most comparable GAAP financial measure, can be found in the text or in the tables in or attached to this press release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.

Certain non-GAAP financial measures, such as adjusted net income, adjusted pre-tax, pre-provision income, adjusted non-interest expenses, and adjusted efficiency ratio, exclude the effect of items that management believes are not reflective of core operating performance (the "Special Items"). Other non-GAAP financial measures include adjusted net interest income and margin, tangible common equity, tangible book value per common share, and certain capital ratios. These measures should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release, and the Corporation's other financial information that is presented in accordance with GAAP.

Special Items

The financial results for the third quarter of 2023, fourth quarter of 2022, and the year ended December 31, 2022 did not include any significant Special Items. The financial results for the fourth quarter of 2023 and the year ended December 31, 2023 included the following Special Items:

Quarter ended December 31, 2023

- A one-time FDIC special assessment expense of $6.3 million ($3.9 million after-tax, calculated based on the statutory tax rate of 37.5%) recognized as a result of the final rule approved by the FDIC Board of Directors on November 16, 2023 to recover the loss to the Deposit Insurance Fund associated with protecting uninsured deposits following certain financial institution failures during the first half of 2023 by means of a quarterly special assessment rate of 3.36 basis points to be applied to the special assessment base during an eight-quarter collection period. The special assessment base is equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion of such deposits. The FDIC deposit special assessment is reflected in the condensed consolidated statements of income as part of "FDIC deposit insurance" expenses.

Year ended December 31, 2023

- A $6.3 million ($3.9 million after-tax, calculated based on the statutory tax rate of 37.5%) one-time expense related to the aforementioned FDIC special assessment.

- A $3.6 million ($2.3 million after-tax, calculated based on the statutory tax rate of 37.5%) gain recognized from a legal settlement reflected in the condensed consolidated statements of income as part of "Other non-interest income."

- A $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures reflected in the condensed consolidated statements of income as "Gain on early extinguishment of debt." The junior subordinated debentures are reflected in the condensed consolidated statements of financial condition as "Other borrowings." The purchase price equated to 92.5% of the $21.4 million par value. The 7.5% discount resulted in the gain of $1.6 million. The gain, realized at the holding company level, had no effect on the income tax expense recorded during 2023.

Non-GAAP Financial Measures

Adjusted Pre-Tax, Pre-Provision Income

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes or health epidemics. Adjusted pre-tax, pre-provision income, as defined by management, represents income before income taxes adjusted to exclude the provisions for credit losses on loans, unfunded loan commitments and debt securities and any gains or losses on sales of investment securities. In addition, from time to time, earnings are also adjusted for certain items that management believes are not reflective of core operating performance, which are regarded as Special Items.

Tangible Common Equity Ratio and Tangible Book Value per Common Share

The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other intangibles. Tangible assets are total assets less goodwill and other intangibles. Management uses and believes that many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with other more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosure of these financial measures may be useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders' equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.

Net Interest Income Excluding Valuations, and on a Tax-Equivalent Basis

Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis in order to provide to investors additional information about the Corporation's net interest income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that management believes facilitates comparison of results to the results of peers.

NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)

Net income was $79.5 million for the fourth quarter of 2023, or $0.46 per diluted share, compared to $82.0 million, or $0.46 per diluted share, for the third quarter of 2023. The following table reconciles, for the fourth quarter of 2023 and year ended December 31, 2023, net income to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures that exclude the significant Special Items identified above, and shows the net income and earnings per diluted share for the third quarter of 2023, fourth quarter of 2022, and year ended December 31, 2022.

	Quarter Ended							Year Ended
	December 31, 2023			September 30, 2023		December 31, 2022		December 31, 2023			December 31, 2022
(In thousands, except per share information)
Net income, as reported (GAAP)	$	79,489		$	82,022	$	73,174	$	302,864		$	305,072
Adjustments:
FDIC special assessment expense		6,311			-		-		6,311			-
Gain recognized from legal settlement		-			-		-		(3,600	)		-
Gain on early extinguishment of debt		-			-		-		(1,605	)		-
Income tax impact of adjustments (1)		(2,367	)		-		-		(1,017	)		-
Adjusted net income attributable to common stockholders (non-GAAP)	$	83,433		$	82,022	$	73,174	$	302,953		$	305,072
Weighted-average diluted shares outstanding		171,351			176,962		184,847		177,180			191,968
Earnings Per Share - diluted (GAAP)	$	0.46		$	0.46	$	0.40	$	1.71		$	1.59
Adjusted Earnings Per Share - diluted (non-GAAP)	$	0.49		$	0.46	$	0.40	$	1.71		$	1.59

(1) See Special Items discussion above for the individual tax impact related to the above adjustments.

INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)

Income before income taxes was $84.9 million for the fourth quarter of 2023, compared to $109.0 million for the third quarter of 2023. For the year ended December 31, 2023, income before income taxes was $397.4 million, compared to $447.6 million for the same period in 2022. Adjusted pre-tax, pre-provision income was $110.0 million for the fourth quarter of 2023, compared to pre-tax, pre-provision income of $113.4 million for the third quarter of 2023. For the year ended December 31, 2023, adjusted pre-tax, pre-provision income was $459.5 million, compared to pre-tax, pre-provision income of $475.3 million for the same period in 2022. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters and for the years ended December 31, 2023 and 2022:

		Quarter Ended															Year Ended
		December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			December 31, 2023			December 31, 2022
(Dollars in thousands)
Income before income taxes		$	84,874		$	108,990		$	100,939		$	102,633		$	106,530		$	397,436		$	447,584
Add: Provision for credit losses expense			18,812			4,396			22,230			15,502			15,712			60,940			27,696
Add: FDIC special assessment expense			6,311			-			-			-			-			6,311			-
Less: Gain recognized from legal settlement			-			-			(3,600	)		-			-			(3,600	)		-
Less: Gain on early extinguishment of debt			-			-			(1,605	)		-			-			(1,605	)		-
	Adjusted pre-tax, pre-provision income ⁽¹⁾	$	109,997		$	113,386		$	117,964		$	118,135		$	122,242		$	459,482		$	475,280
Change from most recent prior period (amount)		$	(3,389	)	$	(4,578	)	$	(171	)	$	(4,107	)	$	(172	)	$	(15,798	)	$	83,768
Change from most recent prior period (percentage)			-3.0	%		-3.9	%		-0.1	%		-3.4	%		-0.1	%		-3.3	%		21.4	%

(1)	Non-GAAP financial measure. See Non-GAAP Disclosures above for the definition and additional information about this non-GAAP financial measure.

NET INTEREST INCOME

The following table sets forth information concerning net interest income for the last five quarters:

	Quarter Ended
(Dollars in thousands)	December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022
Net Interest Income
Interest income	$	265,481		$	263,405		$	252,204		$	242,396		$	233,452
Interest expense		68,799			63,677			52,389			41,511			27,879
Net interest income	$	196,682		$	199,728		$	199,815		$	200,885		$	205,573

Average Balances
Loans and leases	$	12,004,881		$	11,783,456		$	11,591,516		$	11,519,399		$	11,364,963
Total securities, other short-term investments and interest-bearing cash balances		6,835,407			7,325,226			7,333,989			7,232,347			7,314,293
Average interest-earning assets	$	18,840,288		$	19,108,682		$	18,925,505		$	18,751,746		$	18,679,256

Average interest-bearing liabilities	$	11,665,459		$	11,671,938		$	11,176,385		$	10,957,892		$	10,683,776

Average Yield/Rate
Average yield on interest-earning assets - GAAP		5.59	%		5.47	%		5.35	%		5.24	%		4.96	%
Average rate on interest-bearing liabilities - GAAP		2.34	%		2.16	%		1.88	%		1.54	%		1.04	%
Net interest spread - GAAP		3.25	%		3.31	%		3.47	%		3.70	%		3.92	%
Net interest margin - GAAP		4.14	%		4.15	%		4.23	%		4.34	%		4.37	%

Net interest income amounted to $196.7 million for the fourth quarter of 2023, a decrease of $3.0 million, compared to $199.7 million for the third quarter of 2023. The decrease in net interest income reflects the following:

A $5.4 million increase in interest expense on interest-bearing deposits, including:

- A $3.7 million increase in interest expense on brokered CDs, primarily related to a $3.3 million increase associated with a $253.3 million increase in the average balance of this portfolio and approximately $0.4 million driven by an increase in average rates paid in the fourth quarter of 2023.

- A $2.4 million increase in interest expense on time deposits, excluding brokered CDs, mainly due to approximately $1.8 million associated with higher rates paid in the fourth quarter of 2023 on new issuances and renewals, and $0.6 million of additional interest expense associated with an $84.5 million increase in the average balance. The average cost of non-brokered time deposits in the fourth quarter of 2023 increased 26 basis points to 3.17% when compared to the previous quarter.

Partially offset by:

- A $0.7 million net decrease in interest expense on interest-bearing checking and saving accounts, of which $1.7 million is due to a $321.6 million decrease in the average balance, partially offset by approximately $1.0 million driven by an increase in average rates paid in the fourth quarter of 2023 on public sector deposits. The average cost of interest-bearing checking and saving accounts, excluding public sector deposits, remained stable at 0.73% in the fourth quarter of 2023, when compared to 0.74% in the previous quarter.

A $3.9 million decrease in interest income from interest-bearing cash balances and investment securities, mainly due to a $4.1 million decrease in interest income from interest-bearing cash balances, primarily consisting of cash balances deposited at the Federal Reserve Bank ("FED"), driven by the $304.6 million decrease in the average balance. This decrease was partially offset by a $0.2 million increase in interest income associated with dividends received on other equity securities during the fourth quarter of 2023.

Partially offset by:

A $2.9 million increase in interest income on consumer loans and finance leases, of which approximately $2.1 million was related to an increase of $88.2 million in the average balance of this portfolio, and $0.8 million increase was related to higher yields, mainly in the auto loans and credit cards portfolios.
A $2.1 million increase in interest income on commercial and construction loans, of which approximately $2.5 million was related to the $121.4 million increase in the average balance of this portfolio, and $0.8 million was related to the effect of higher market interest rates on the upward repricing of the variable-rate loans and new loan originations in the commercial and industrial loan portfolio. These variances were partially offset by the effect during the third quarter of 2023 of interest income of $1.2 million recognized on the collection of a previously charged-off construction loan in the Puerto Rico region.
A $1.1 million increase in interest income on residential mortgage loans, mainly driven by interest income of $0.9 million mostly associated with higher collections on nonaccrual loans during the fourth quarter of 2023, including $0.5 million recognized on the payoff of a nonaccrual loan in the Puerto Rico region.
A $0.3 million decrease in interest expense on borrowings, mainly driven by the $25.3 million decrease in the average balance of short-term repurchase agreements due to the repayments at maturity of such borrowings during the third quarter of 2023.

Net interest margin for the fourth quarter of 2023 remained relatively flat at 4.14% and includes an increase in cost of funds which offsets the change in mix to higher interest-earning assets.

NON-INTEREST INCOME

The following table sets forth information concerning non-interest income for the last five quarters:

	Quarter Ended
	December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022
(In thousands)
Service charges and fees on deposit accounts	$	9,662	$	9,552	$	9,287	$	9,541	$	9,174
Mortgage banking activities		2,094		2,821		2,860		2,812		2,572
Gain on early extinguishment of debt		-		-		1,605		-		-
Insurance commission income		2,379		2,790		2,747		4,847		2,898
Card and processing income		11,015		10,841		11,135		10,918		10,601
Other non-interest income		8,459		4,292		8,637		4,400		4,355
Non-interest income	$	33,609	$	30,296	$	36,271	$	32,518	$	29,600

Non-interest income increased by $3.3 million to $33.6 million for the fourth quarter of 2023, compared to $30.3 million for the third quarter of 2023, mainly due to:

A $4.2 million increase in other non-interest income, mainly driven by a $3.0 million gain recognized on the sale of a banking premise in the Florida region, $0.4 million in debit card incentives collected, and a $0.2 million increase in unrealized gains on marketable equity securities.

Partially offset by:

A $0.7 million decrease in revenues from mortgage banking activities, mainly driven by a decrease in the net realized gain on sales of residential mortgage loans in the secondary market due to a lower volume of sales and lower margins, and a $0.3 million decrease in the fair value of to-be-announced forward contracts. During the fourth and third quarters of 2023, net realized gains of $0.4 million and $0.9 million, respectively, were recognized as a result of Government National Mortgage Association ("GNMA") securitization transactions and whole loan sales to U.S. government-sponsored enterprises amounting to $23.7 million and $42.3 million, respectively.

NON-INTEREST EXPENSES

The following table sets forth information concerning non-interest expenses for the last five quarters:

		Quarter Ended
		December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022
(In thousands)
Employees' compensation and benefits		$	55,584		$	56,535		$	54,314		$	56,422		$	52,241
Occupancy and equipment			21,847			21,781			21,097			21,186			21,843
Business promotion			6,725			4,759			4,167			3,975			5,590
Professional service fees:
	Collections, appraisals and other credit-related fees		952			930			1,231			848			1,483
	Outsourcing technology services		7,003			7,261			7,278			8,141			7,806
	Other professional fees		3,295			2,831			3,087			2,984			3,380
Taxes, other than income taxes			5,535			5,465			5,124			5,112			5,211
FDIC deposit insurance			8,454			2,143			2,143			2,133			1,544
Other insurance and supervisory fees			2,308			2,356			2,352			2,368			2,429
Net gain on OREO operations			(1,005	)		(2,153	)		(1,984	)		(1,996	)		(2,557	)
Credit and debit card processing expenses			7,360			6,779			6,540			5,318			6,362
Communications			2,134			2,219			1,992			2,216			2,322
Other non-interest expenses			6,413			5,732			5,576			6,561			5,277
	Total non-interest expenses	$	126,605		$	116,638		$	112,917		$	115,268		$	112,931

Non-interest expenses amounted to $126.6 million in the fourth quarter of 2023, an increase of $10.0 million, from $116.6 million in the third quarter of 2023. Non-interest expenses for the fourth quarter of 2023 include the FDIC special assessment expense of $6.3 million. On a non-GAAP basis, excluding the effect of this Special Item, adjusted non-interest expenses increased by $3.7 million mainly due to:

A $2.0 million increase in business promotion expenses, mainly as a result of a $1.1 million increase in sponsorship and public relations activities and a $0.6 million increase in marketing and advertising expenses.
A $1.1 million decrease in net gain on OREO operations, mainly driven by a $0.8 million decrease in net realized gains on sales of OREO properties, primarily residential properties in Puerto Rico, and a $0.3 million increase in property values write-downs, mainly a $0.1 million write-down to the value of a commercial OREO in Puerto Rico recorded during the fourth quarter of 2023.
A $0.7 million increase in other non-interest expenses, of which $0.5 million related to legal and operational losses.
A $0.6 million increase in credit and debit card processing expenses, mainly due to higher debit card assessment fees and lower incentives collected than the previous quarter.

Partially offset by:

A $1.0 million decrease in employees' compensation and benefits expense, mainly driven by a reduction of $1.4 million in Christmas bonuses and incentives accruals, partially offset by a $0.6 million increase in salary compensation mainly due to new hires and salary adjustments.

INCOME TAXES

The Corporation recorded an income tax expense of $5.4 million for the fourth quarter of 2023, compared to $27.0 million for the third quarter of 2023. The income tax expense decreased due to a reduction in the effective tax rate for the year related to higher than previously forecasted business activities during the fourth quarter with preferential tax treatment under the Puerto Rico tax code, coupled with a lower pre-tax income.

The Corporation's estimated annual effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, was 23.5% for the fourth quarter of 2023, compared to 28.2% estimated during the third quarter of 2023. As of December 31, 2023, the Corporation had a deferred tax asset of $150.1 million, net of a valuation allowance of $139.2 million against the deferred tax assets.

CREDIT QUALITY

Non-Performing Assets

The following table sets forth information concerning non-performing assets for the last five quarters:

(Dollars in thousands)		December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022
Nonaccrual loans held for investment:
Residential mortgage		$	32,239		$	31,946		$	33,252		$	36,410		$	42,772
Construction			1,569			1,640			1,677			1,794			2,208
Commercial mortgage			12,205			21,632			21,536			21,598			22,319
Commercial and Industrial			15,250			18,809			9,194			13,404			7,830
Consumer and finance leases			22,444			19,137			16,362			15,936			14,806
Total nonaccrual loans held for investment		$	83,707		$	93,164		$	82,021		$	89,142		$	89,935
OREO			32,669			28,563			31,571			32,862			31,641
Other repossessed property			8,115			7,063			5,404			4,743			5,380
Other assets (1)			1,415			1,448			2,111			2,203			2,202
Total non-performing assets (2)		$	125,906		$	130,238		$	121,107		$	128,950		$	129,158

Past due loans 90 days and still accruing (3)		$	59,452		$	62,892		$	63,211		$	74,380		$	80,517
Nonaccrual loans held for investment to total loans held for investment			0.69	%		0.78	%		0.70	%		0.77	%		0.78	%
Nonaccrual loans to total loans			0.69	%		0.78	%		0.70	%		0.77	%		0.78	%
Non-performing assets to total assets			0.67	%		0.70	%		0.63	%		0.68	%		0.69	%

(1)	Residential pass-through mortgage-backed securities ("MBS") issued by the Puerto Rico Housing Finance Authority ("PRHFA") held as part of the available-for-sale debt securities portfolio.
(2)	Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as "units of account" both at the time of adoption of current expected credit losses ("CECL") on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more amounted to $8.3 million as of December 31, 2023 (September 30, 2023 - $8.9 million; June 30, 2023 - $9.5 million; March 31, 2023 - $10.4 million; December 31, 2022 - $12.0 million).
(3)	These include rebooked loans, which were previously pooled into GNMA securities, amounting to $7.9 million as of December 31, 2023 (September 30, 2023 - $8.5 million; June 30, 2023 - $6.5 million; March 31, 2023 - $7.1 million; December 31, 2022 - $10.3 million). Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA's specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability.

Variances in credit quality metrics:

Total non-performing assets decreased by $4.3 million to $125.9 million as of December 31, 2023, compared to $130.2 million as of September 30, 2023. Total nonaccrual loans held for investment decreased by $9.5 million to $83.7 million as of December 31, 2023, compared to $93.2 million as of September 30, 2023.

The decrease in non-performing assets was driven by the commercial and construction loan portfolios, which includes the following:

- $7.7 million in collections and loans returned to accrual status, which include a $2.7 million commercial mortgage loan that was cured during the quarter; and

- $1.5 million in charge-offs, of which $1.0 million was related to the aforementioned $1.0 million charge-off recorded on a nonaccrual commercial mortgage loan transferred to OREO during the fourth quarter of 2023.

Partially offset by:

- A $3.3 million increase in nonaccrual consumer loans, consisting mainly of auto loans and finance leases.

- A $1.1 million increase in other repossessed property, consisting of repossessed automobiles.

- A $0.3 million increase in nonaccrual residential mortgage loans, mainly related to inflows of $5.3 million, partially offset by $3.0 million in collections and $1.6 million of loans restored to accrual status.

Inflows to nonaccrual loans held for investment were $34.9 million in the fourth quarter of 2023, a decrease of $5.6 million, compared to inflows of $40.5 million in the third quarter of 2023. Inflows to nonaccrual commercial and construction loans were $1.5 million in the fourth quarter of 2023, a decrease of $9.6 million, compared to inflows of $11.1 million in the third quarter of 2023, mainly due to the inflow of a $9.5 million commercial and industrial loan in the Puerto Rico region during the third quarter of 2023. Inflows to nonaccrual consumer loans were $28.1 million, an increase of $3.2 million compared to inflows of $24.9 million in the third quarter of 2023. Inflows to nonaccrual residential mortgage loans were $5.3 million in the fourth quarter of 2023, an increase of $0.8 million compared to inflows of $4.5 million in the third quarter of 2023. See Early Delinquency below for additional information.

Early Delinquency

Total loans held for investment in early delinquency (i.e., 30-89 days past due accruing loans, as defined in regulatory reporting instructions) amounted to $150.8 million as of December 31, 2023, an increase of $13.8 million, compared to $137.0 million as of September 30, 2023. The variances by major portfolio categories are as follows:

Consumer loans in early delinquency increased in the fourth quarter of 2023 by $15.4 million to $112.0 million, mainly in the auto loans and finance leases portfolio.
Residential mortgage loans in early delinquency increased by $2.4 million to $36.5 million.
Commercial and construction loans in early delinquency decreased by $4.0 million to $2.3 million, in part due to a $1.8 million matured construction loan that migrated to 90 days past due and still accruing that is in the process of renewal but for which the Corporation continues to receive interest and principal payments from the borrower.

Allowance for Credit Losses

The following table summarizes the activity of the ACL for on-balance sheet and off-balance sheet exposures during the fourth and third quarters of 2023:

	Quarter ended December 31,2023
	Loans and Finance Leases															Debt Securities
	Residential Mortgage Loans			Commercial and Construction Loans			Consumer Loans and Finance Leases			Total Loans and Finance Leases			Unfunded Loans Commitments			Held-to- Maturity			Available- for-Sale		Total ACL
Allowance for Credit Losses	Residential Mortgage Loans			Commercial and Construction Loans			Consumer Loans and Finance Leases			Total Loans and Finance Leases			Unfunded Loans Commitments			Held-to- Maturity			Available- for-Sale		Total ACL
(Dollars in thousands)
Allowance for credit losses, beginning balance	$	57,200		$	76,875		$	129,540		$	263,615		$	4,761		$	2,250		$	465	$	271,091
Provision for credit losses - (benefit) expense		(90	)		(4,905	)		23,970			18,975			(123	)		(53	)		13		18,812
Net recoveries (charge-offs)		287			(544	)		(20,490	)		(20,747	)		-			-			33		(20,714

First BanCorp. Announces Earnings for the Quarter and Year Ended December 31, 2023