FIRST BANCORP /PR/ - Annual Report: 2022 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K

(Mark one)

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE

ACT

OF 1934

For the Fiscal Year Ended

December 31, 2022

[ ]

TRANSITION REPORT PURSUANT TO SECTION

13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF

1934

For the transition period from ___________________ to ___________________

COMMISSION FILE NUMBER

001-14793

FIRST BANCORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED

IN ITS CHARTER)

Puerto Rico

66-0561882

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1519 Ponce de León Avenue, Stop 23

00908

San Juan

Puerto Rico

(Zip Code)

(Address of principal executive office)

Registrant’s telephone number, including area code:

(

787

)

729-8200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.10 par value)

FBP

New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned

issuer, as defined in Rule 405 of the Securities

Act.

Yes

☑

☐

Indicate by check mark if the registrant is not required to file reports

pursuant to Section 13 or 15(d) of the Act. Yes

☐

☑

Indicate by check mark whether the registrant (1) has filed all

reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for

such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the

past 90 days.

Yes

☑

☐

Indicate by check mark whether the registrant has submitted

electronically every Interactive Data File required to be submitted

pursuant to Rule 405 of Regulation S-T (§232.405 of this

chapter) during the preceding 12 months (or for such shorter period

that the registrant was required to submit such files).

Yes

☑

☐

Indicate by check mark whether the registrant is a large

accelerated filer, an accelerated filer,

a non-accelerated filer, a smaller reporting company,

or an emerging growth company.

See the

definitions of “large accelerated filer,” “accelerated

filer,” “smaller reporting company,”

and “emerging growth company” in Rule 12b-2 of the Exchange

Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company,

indicate by check mark if the registrant has elected not to use

the extended transition period for complying with any new or revised

financial accounting

standards provided pursuant to Section 13 (a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a

report on and attestation to its management’s

assessment of the effectiveness of its internal control

over financial reporting under

Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the

registered public accounting firm that prepared or issued its

audit report.

☑

If securities are registered pursuant to Section 12(b) of the Act,

indicate by check mark whether the financial statements of the

registrant included in the filing reflect the correction of an

error

to previously issued financial statements.

☐

Indicate by check mark whether any of those error corrections are

restatements that required a recovery analysis of incentive-based

compensation received by any of the registrant’s

executive

officers during the relevant recovery period pursuant

to §240.10D-1(b).

☐

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☑

The aggregate market value of the voting common equity held

by non-affiliates of the registrant as of June 30,

2022 (the last trading day of the registrant’s

most recently completed second

fiscal quarter) was $

2,373,329,883

based on the closing price of $12.91 per share of the registrant’s

common stock on the New York

Stock Exchange on June 30, 2022. The registrant had no

nonvoting common equity outstanding as of June 30, 2022.

For the purposes of the foregoing calculation only,

the registrant has defined affiliates to include (a) the executive

officers named in

Part III of this Annual Report on Form 10-K; (b) all directors

of the registrant; and (c) each shareholder,

including the registrant’s employee benefit

plans but excluding shareholders that file on

Schedule 13G, known to the registrant to be the beneficial owner

of 5% or more of the outstanding shares of common stock of the

registrant as of June 30, 2022. The registrant’s

response to

this item is not intended to be an admission that any person

is an affiliate of the registrant for any purposes other than this

response.

Indicate the number of shares outstanding of each of the

registrant’s classes of common stock,

as of the latest practicable date:

180,585,944

shares as of February 21, 2023.

Documents incorporated by reference:

Portions of the definitive proxy statement relating to

the registrant’s annual meeting of stockholders

scheduled to be held on May 18, 2023 are

incorporated by reference in response to Items 10, 11,

12, 13 and 14 of Part III of this Form 10-K.

FIRST BANCORP.

2022 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART

Item 5.

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

Securities

Item 6.

[Reserved]

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

111

Item 8.

Financial Statements and Supplementary Data

112

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

221

Item 9A.

Controls and Procedures

221

Item 9B.

Other Information

221

Item 9C.

Disclosure regarding Foreign Jurisdictions that Prevent Inspections

221

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance

222

Item 11.

Executive Compensation

222

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

222

Item 13.

Certain Relationships and Related Transactions, and Director Independence

222

Item 14.

Principal Accountant Fees and Services

223

PART

Item 15.

Exhibits and Financial Statement Schedules

223

Item 16.

Form 10-K Summary

223

Exhibit Index

SIGNATURES

Forward-Looking Statements

This Form 10-K contains forward-looking

statements within the meaning

of Section 27A of the

Securities Act of 1933,

as amended

(the “Securities Act”),

and Section 21E

of the Securities

Exchange Act

of 1934, as

amended (the

“Exchange Act”),

which are subject

to the safe harbor created by such sections. When used

in this Form 10-K or future filings by

First BanCorp. (the “Corporation,” “we,”

“us,” or “our”)

with the U.S.

Securities and

Exchange Commission (the

“SEC”), in the

Corporation’s

press releases or

in other public

stockholder

communications

made

the

Corporation,

oral

statements

made

behalf

the

Corporation

by,

with

the

approval of, an

authorized executive

officer,

the words or

phrases “would,” “intends,”

“will,” “expect,”

“should,” “plans,” “forecast

,”

“anticipate,” “look forward,”

“believes,” and other

terms of similar meaning

or import, or the

negatives of these terms

or variations of

them,

connection

with

any

discussion

future

operating,

financial

other

performance

are

meant

identify

“forward-looking

statements.”

The Corporation cautions readers

not to place undue reliance on

any such “forward-looking statements,” which

speak only as of the

date

made,

and

advises

readers

that

these

forward-looking

statements

are

not

guarantees

future

performance

and

involve

certain

risks,

uncertainties,

estimates,

and

assumptions

that

are

difficult

predict.

Various

factors,

some

which

are

beyond

our

control, could cause actual results to differ materially from

those expressed in, or implied by,

such forward-looking statements.

Factors that could

cause results to

differ from

those expressed in

the Corporation’s

forward-looking statements

include, but

are not

limited to, risks described or referenced in Part I, Item 1A, “Risk Factors,” and the following:

●

the impacts of rising interest

rates and inflation on

the Corporation, including a

decrease in demand for new

loan originations

and

refinancings,

increased

competition

for

borrowers,

attrition

deposits

and

increase

non-interest

expenses

which

would

impact

the

Corporation’s

earnings

and

may

adversely

impact

origination

volumes,

liquidity,

and

financial

performance;

●

adverse changes

in general

economic conditions

in Puerto

Rico, the

United States

(“U.S.”), and

the U.S.

Virgin

Islands (the

“USVI”)

and

British

Virgin

Islands

(the

“BVI”),

including

the

interest

rate

environment,

unemployment

rates,

market

liquidity,

housing

absorption

rates,

real

estate

markets

and

U.S.

capital

markets,

which

may

affect

funding

sources,

loan

portfolio

performance

and credit

quality,

market prices

of investment

securities and

demand for

the Corporation’s

products

and services, and which may reduce the Corporation’s

revenues and earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

in Puerto

Rico, and the timing and pace of disbursements of funds earmarked for disaster

relief;

●

the

long-term

economic

and

other

effects

the

COVID-19

pandemic

and

their

impact

the

Corporation’s

business,

operations and

financial condition,

including the

impact of any

residual risks related

to the Corporation’s

participation in

the

Small Business Administration Paycheck Protection Program (“SBA PPP”);

●

the

Corporation’s

ability

identify

and

prevent

cyber-security

incidents,

such

data

security

breaches,

ransomware,

malware,

“denial

of service”

attacks,

“hacking,”

identity

theft and

state-sponsored

cyberthreats,

and

the occurrence

of any,

which

may

result

misuse

misappropriation

confidential

proprietary

information,

disruption

damage

our

systems, increased costs and losses or an adverse effect to our

reputation;

●

general competitive

factors and other

market risks as

well as the

implementation of

strategic growth opportunities,

including

risks, uncertainties and other factors or events related to any business acquisitions or

dispositions;

●

uncertainty as

to the

implementation of

the debt

restructuring plan

of Puerto

Rico (“Plan

of Adjustment”

or “PoA”)

and the

fiscal plan for Puerto Rico

as certified on January 27, 2022 (the

“2022 Fiscal Plan”) by the oversight

board established by the

Puerto Rico

Oversight, Management,

and Economic

Stability Act

(“PROMESA”),

or any

revisions to

it, on

our clients

and

loan portfolios, and any potential impact from future economic or political

developments in Puerto Rico;

●

uncertainty

the

continued

availability

wholesale

funding

sources,

such

securities

sold

under

agreements

repurchase, Federal Home Loan Bank (“FHLB”) advances and brokered certificates

of deposit (“brokered CDs”);

●

the impact of changes in accounting

standards or assumptions in applying

those standards, on forecasts of economic

variables

considered for the determination of the allowance for credit losses (“ACL”);

●

the ability of the

Corporation’s banking

subsidiary,

FirstBank Puerto Rico (“FirstBank”

or the “Bank”) to

realize the benefits

of its net deferred tax assets;

●

the ability of FirstBank to generate sufficient cash flow to make dividend

payments to the Corporation;

●

environmental, social, and governance matters, including our climate-related

initiatives and commitments;

●

the impacts

of natural

or man-made

disasters, widespread

health emergencies,

geopolitical conflicts

(including

the ongoing

conflict

Ukraine),

terrorist

attacks

other

catastrophic

external

events,

including

impacts

such

events

general

economic conditions and on the Corporation’s

assumptions regarding forecasts of economic variables;

●

the effect

of changes

in the

interest rate

environment,

including uncertainty

about the

effect

of the

cessation of

the London

Interbank Offered Rate (“LIBOR”);

●

any adverse change

in the Corporation’s

ability to attract

and retain clients

and gain acceptance

from current and

prospective

customers for new products and services, including those related to the

offering of digital banking and financial services;

●

the

risk

that

additional

portions

the

unrealized

losses in

the

Corporation’s

debt

securities portfolio

are

determined

credit-related,

resulting

additional

charges

the

provision

for

credit

losses

the

Corporation’s

available-for-sale

debt

securities portfolio;

●

the impacts of applicable legislative, tax or regulatory changes on the

Corporation’s financial condition or

performance;

●

the effect

of changes

in the

fiscal and

monetary policies

and regulations

of the

U.S. federal

government and

the Puerto

Rico

and

other

governments,

including

those

determined

the

Board

the

Governors

the

Federal

Reserve

System

(the

“Federal Reserve Board”), the Federal

Reserve Bank of New York

(the “New York

FED” or the “FED”), the Federal Deposit

Insurance Corporation

(the “FDIC”),

government-sponsored

housing agencies,

and regulators

in Puerto

Rico, and

the USVI

and BVI;

●

the

risk

possible

failure

circumvention

the

Corporation’s

internal

controls

and

procedures

and

the

risk

that

the

Corporation’s risk management

policies may not be adequate;

●

the

risk

that

the

FDIC

may

further

increase

the

deposit

insurance

premium

and/or

require

special

assessments,

causing

additional increase in the Corporation’s

non-interest expenses;

●

any need to recognize impairments on the Corporation’s

financial instruments, goodwill and other intangible assets;

●

the risk

that the

impact

of the

occurrence

of any

of these

uncertainties on

the Corporation’s

capital would

preclude

further

growth of FirstBank and preclude the Corporation’s

Board of Directors from declaring dividends; and

●

uncertainty as

to whether

FirstBank will

be able

to continue

to satisfy

its regulators

regarding,

among other

things, its

asset

quality,

liquidity

plans,

maintenance

capital

levels

and

compliance

with

applicable

laws,

regulations

and

requirements.

The

Corporation

does

not

undertake,

and

specifically

disclaims

any

obligation,

update

any

“forward-looking

statements”

reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities laws.

PART

Item 1.

Business

GENERAL

First

BanCorp.

publicly

owned

financial

holding

company

that

subject

regulation,

supervision

and

examination

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,

trust services, insurance

agency services, and

other

financial products

and services

in Puerto

Rico, the

U.S., the

USVI and

the BVI.

As of

December 31,

2022, the

Corporation had

total

assets of $18.6 billion, including loans of $11.6

billion, total deposits of $16.1 billion, and total stockholders’ equity of $1.3

billion.

The

Corporation

provides

a wide

range

of financial

services for

retail,

commercial

and institutional

clients.

The

Corporation

has

two

wholly-owned

subsidiaries:

FirstBank

and

FirstBank

Insurance

Agency,

Inc.

(“FirstBank

Insurance

Agency”).

FirstBank

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

Puerto

Rico

(“OCIF”)

and

the

FDIC.

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund

(the

“DIF”).

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

the

state

Florida

are

subject

regulation

and

examination

the

Florida

Office

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 and the Division of Banking and Insurance Financial Regulation in

the USVI.

FirstBank conducts its

business through its main

office located in

San Juan, Puerto Rico,

59 banking branches

in Puerto Rico, eight

banking

branches

the

USVI

and

the

BVI,

and

nine

banking

branches

the

state

Florida.

FirstBank

has

six

wholly-owned

subsidiaries

with

operations

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

finance

company

specializing

the

origination

small

loans

with

offices

Puerto

Rico;

First

Management

Puerto

Rico,

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

international

banking

entity

(an

“IBE”)

organized

under

the

International

Banking

Entity

Act

Puerto

Rico;

two

companies

engaged

the

operation

certain

real

estate

owned

(“OREO”) property

and one private equity fund.

For a

discussion of

certain significant

events that

have occurred

in the

year ended

December 31,

2022, please

refer to

“Significant

Events” included in Item 7. Management’s

Discussion and Analysis of Financial Condition and

Results of Operations of this Form 10-

BUSINESS SEGMENTS

The Corporation has six reportable segments: Commercial and Corporate

Banking; Mortgage Banking; Consumer (Retail) Banking;

Treasury and Investments; United States

Operations; and Virgin

Islands Operations. These segments are described below,

as well as in

Note 27 - “Segment Information,” to the consolidated

financial statements for the year ended December 31, 2022 included in

Item 8 of

this Form 10-K.

Commercial and Corporate Banking

The

Commercial

and

Corporate

Banking

segment

consists

the

Corporation’s

lending

and

other

services

for

large

customers

represented

specialized

and

middle-market

clients

and

the

government

sector

the

Puerto

Rico

region.

The

Commercial

and

Corporate

Banking

segment

offers

commercial

loans,

including

commercial

real

estate

and

construction

loans,

well

other

products,

such

cash

management

and

business

management

services.

substantial

portion

the

commercial

and

corporate

banking portfolio is secured by the underlying real estate collateral and the personal

guarantees of the borrowers.

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.

The Mortgage

Banking segment

focuses on

originating

residential

real

estate

loans,

some

which

conform

the

U.S.

Federal

Housing

Administration

(the

“FHA”),

U.S.

Veterans

Administration

(the

“VA”)

and

the

U.S.

Department

Agriculture

Rural

Development

(the

“RD”)

standards.

Originated

loans that meet

the FHA’s

standards qualify for

the FHA’s

insurance program whereas

loans that meet the

standards of the VA

or RD

are guaranteed by those respective federal agencies.

Mortgage

loans that

do not

qualify under

the FHA,

or RD

programs

are

referred

to as

conventional

loans. Conventional

real

estate loans

can be

conforming or

non-conforming. Conforming

loans are residential

real estate loans

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 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

markets. Residential real

estate conforming

loans are

sold to

investors like

FNMA and

FHLMC. Most

of the

Corporation’s

residential mortgage

loan portfolio

consists of

fixed-

rate, fully

amortizing, full

documentation loans.

The Corporation

has commitment

authority to

issue Government

National Mortgage

Association

(“GNMA”)

mortgage-backed

securities

(“MBS”).

Under

this

program,

the

Corporation

has

been

selling

FHA/VA

mortgage loans into the secondary market since 2009.

Consumer (Retail) Banking

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities

conducted

mainly through FirstBank’s

branch network in the Puerto Rico region.

Loans to consumers include auto loans,

finance leases, boat and

personal loans,

credit card loans,

and lines of

credit.

Deposit products include

interest-bearing and non-interest-bearing

checking and

savings accounts,

Individual Retirement

Accounts (“IRAs”)

and retail

certificates of

deposit (“retail

CDs”). Retail

deposits gathered

through each

branch of

FirstBank’s

retail network

serve as

one of

the funding

sources for

the lending

and investment

activities. This

segment also includes the Corporation’s

insurance agency activities in the Puerto Rico region.

Treasury and Investments

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

treasury

and

investment

management

functions.

The

treasury

function,

which

includes

funding

and

liquidity

management,

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking

and

the

United

States

Operations

segments

finance

their

respective

lending

activities and

borrows from

those segments.

The Treasury

and Investments

segment also

obtains funding

through brokered

deposits,

advances from the FHLB, and repurchase agreements involving investment

securities, among other possible 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 nine

banking

branches.

The

United

States

Operations

segment

offers

array

both

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

credit.

Retail

deposits,

well

FHLB

advances

and

brokered

CDs

assigned

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 and commercial real estate products,

such as lines of credit, term loans and construction loans.

Virgin Islands Operations

The

Virgin

Islands

Operations

segment

consists

all

banking

activities

conducted

FirstBank

the

USVI

and

BVI

regions,

including

consumer and

commercial banking

services, with

a total

eight banking

branches serving

the islands

in the

USVI of

St.

Thomas,

St.

Croix,

and

St.

John,

and

the

island

Tortola

the

BVI.

The

Virgin

Islands

Operations

segment

driven

its

consumer, commercial lending and deposit

-taking activities.

Loans

consumers

include

auto

and

boat

loans,

lines

credit,

and

personal

and

residential

mortgage

loans.

Deposit

products

include

interest-bearing

and

non-interest-bearing

checking

and

savings

accounts,

IRAs,

and

retail

CDs.

Retail

deposits

gathered

through each branch serve as the funding sources for its own lending activities.

ENVIRONMENTAL

SOCIAL AND GOVERNANCE (“ESG”) PROGRAM

OVERVIEW

The

Corporation

is committed

supporting

our

clients,

employees,

shareholders

and

communities

which

serve.

Our

ESG

program builds on the Corporation’s

core values, including being a socially

responsible company.

The Corporation sees effective

ESG

management as a critical step towards a sustainable, inclusive and successful future.

During

2021,

the

Corporation

adopted

ESG

framework

through

which

establishes

and

communicates

its

ESG

strategy

and

overarching governance

policy.

In 2022,

the Corporation

continued evolving

its ESG

program,

including the

publication of

its initial

First

BanCorp.

Environmental,

Social

and

Governance

Report

for

2021

(the

“2021

ESG

Report”).

The

2021

ESG

Report

discloses

information

wide

range

ESG

topics,

including

governance

and

leadership;

responsible

business

practices;

employees

and

culture;

diversity,

equity

and

inclusion;

community

engagement;

and

environmental

stewardship.

The

ESG

Report

for

2022

expected

published

during

the

second

quarter

2023.

Also

2022,

the

Corporation’s

Board

Directors

(the

“Board

Directors”

the

“Board”)

approved

First

BanCorp.’s

Sustainability

Policy

(the

“Sustainability

Policy”),

which

establishes

the

Corporation’s framework

to address ESG matters.

ESG Governance

The Corporation’s

Board of Directors and

executive leadership team

share responsibilities relating

to oversight of our

ESG policies

and practices. In

February 2022, the

Corporate Governance and

Nominating Committee of

the Board of

Directors amended its charter

include

oversight

responsibility

ESG

matters,

and

has

primary

oversight

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, investment management

and credit risk management.

As part of

the ESG governance

structure set forth

in the Sustainability

Policy,

the responsibility of

day-to-day management

of our

ESG framework

and strategy

has been

delegated to

a management-level

ESG Committee,

comprised of

leaders from

different areas,

such

Human

Resources,

Enterprise

Risk

Management,

Strategic

Planning

and

Investor

Relations,

Legal

and

Corporate

Affairs,

Marketing, Compliance,

Finance, and

Corporate Internal

Audit. The

ESG Committee

is tasked

with aligning

priorities and

initiatives

for the

year,

setting and

monitoring

long-term objectives

and goals,

and leading

the annual

reporting process

on ESG

categories

from

the

four

major

categories

under

the

regulatory

capital

rules (0%, 20%, 50%, and 100%) to a much larger and

more risk-sensitive number of categories, depending on the nature of the

assets.

In a

number of

cases, the

Standardized Approach

resulted in

higher risk

weights for

a variety of

asset categories.

Specific changes

the

risk-weightings

of assets

included,

among

other

things: (i)

applying

a 150%

risk

weight

instead of

a 100%

risk

weight

for high

volatility commercial

real estate acquisition,

development and

construction loans,

(ii) assigning

a 150%

risk weight

to exposures

that

are 90 days past due

(other than qualifying residential

mortgage exposures, which remain

at an assigned risk-weighting

of 100%), (iii)

establishing a 20% credit conversion factor for the unused portion

of a commitment with an original maturity of one year or less that is

not unconditionally

cancellable, in

contrast to

the 0%

risk-weighting under

the prior

rules and

(iv) requiring

capital to

be maintained

against

on-balance-sheet

and

off-balance-sheet

exposures

that

result

from

certain

cleared

transactions,

guarantees

and

credit

derivatives, and collateralized transactions (such as repurchase agreement

transactions).

Set forth below are the Corporation's and FirstBank's capital ratios as of December 31,

2022 based on Federal Reserve and FDIC

guidelines:

Banking Subsidiary

First BanCorp.

FirstBank

Well-Capitalized

Minimum

As of December 31, 2022

Total capital (Total

capital to risk-weighted assets)

19.21%

18.90%

10.00%

CET1 Capital (CET1 capital to risk-weighted assets)

16.53%

16.84%

6.50%

Tier 1 capital ratio (Tier

1 capital to risk-weighted assets)

16.53%

17.65%

8.00%

Leverage ratio

(1)

10.70%

11.43%

5.00%

_______________

(1) Tier 1 capital to average assets.

Stress-Testing

and Capital Planning Requirements

Federal

regulations

currently

not

impose

formal

stress-testing

requirements

banking

organizations

with

total

assets

less

than $100 billion,

such as the

Corporation and

FirstBank.

The federal banking

agencies have indicated

through interagency guidance

that the

capital planning

and risk

management

practices of

institutions with

total assets

of less

than $100

billion will

continue

to be

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

has a

policy

that, as

a matter

of prudent

banking,

a bank

holding

company should

generally not

pay

cash

dividends

unless

its

net

income

available

common

shareholders

for

the

past

four

quarters,

net

dividends

previously

paid

during

that

period,

has

been

sufficient

fully

fund

the

dividends

and

the

prospective

rate

earnings

retention

appears

consistent with the organization’s

capital needs, asset quality,

and overall current and prospective financial condition. Furthermore,

the

Federal

Reserve Board’s

regulatory capital

rule (Regulation

Q) limits

the amount

of capital

a bank

holding

company may

distribute

under certain circumstances. A banking

organization must maintain

a capital conservation buffer

of CET1 capital in an amount

greater

than 2.5% of

total risk weighted

assets to avoid being

subject to limitations on

capital distributions. The

Corporation is also subject

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

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

the

Federal

Deposit

Insurance

Act

(the

“FDIA”),

and

FDIC

regulations.

general

terms,

the

Puerto

Rico

Banking

Law

provides

that when

the

expenditures

of a

bank

are greater

than

receipts,

the

excess

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

the

FDIA

and

the

FDIC

restrict

the

payment

dividends

when

bank

undercapitalized

(as

discussed

Prompt

Corrective

Action

below),

when

bank

has

failed

pay

insurance

assessments,

when

there

are

safety

and

soundness

concerns

regarding such bank.

The

principal

source

funds

for

the

Corporation’s

parent

holding

company

dividends

declared

and

paid

its

subsidiary,

FirstBank. The ability

of FirstBank to declare

and pay dividends on

its capital stock is

regulated by the Puerto

Rico Banking Law,

the

Federal

Deposit

Insurance

Act

(the

“FDIA”),

and

FDIC

regulations.

general

terms,

the

Puerto

Rico

Banking

Law

provides

that

when

the

expenditures

bank

are

greater

than

receipts,

the

excess

expenditures

over

receipts

shall

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

in part,

the outstanding

amount must

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

20%

the

original

capital,

the

bank

may

not

declare

any

dividends.

general,

the

FDIA

and

the

FDIC

regulations

restrict

the

payment of

dividends when

a bank

is undercapitalized

(as discussed

Prompt

Corrective

Action

below), when

a bank

has failed

pay insurance assessments, or when there are safety and soundness concerns regarding

such bank.

Refer

Part

II,

Item

“Market

for

Registrant’s

Common

Equity,

Stockholder

Matters

and

Issuer

Purchases

Equity

Securities” of this Annual Report on Form 10-K

for further information on the Corporation’s

distribution of dividends and repurchases

of common stock.

Consumer Financial Protection Bureau

The CFPB has

primary examination

and enforcement authority

over FirstBank and

other banks with

over $10 billion

in assets with

respect to consumer financial products and services.

The

CFPB’s

primary

functions

include

the

supervision

“covered

persons”

(broadly

defined

include

any

person

offering

providing a consumer

financial product or

service and any

affiliated service

provider) for compliance

with federal

consumer financial

laws.

implements

amendments

and

has

primary

authority

enforce

the

federal

consumer

financial

laws,

including

the

Equal

Credit Opportunity Act, the Truth

in Lending Act (“TILA”) and the

Real Estate Settlement Procedures Act (“RESPA”),

among others.

The

CFPB

also

has

broad

powers

prescribe

rules

applicable

covered

person

service

provider

connection

with

any

transaction with a consumer for a consumer financial product or service,

or the offering of a consumer financial product or service.

Among other

actions, the

CFPB has

issued regulations

setting forth

mortgage servicing

rules that

apply to

the Bank,

which affect

consumer notices

regarding delinquency,

foreclosure alternatives,

modification applications,

interest rate

adjustments and

options for

avoiding

“force-placed”

insurance.

Further,

the

CFPB has

adopted

rules and

forms

that

combine

certain

disclosures

that

consumers

receive in connection

with applying for and closing on a mortgage loan under the TILA and the RESPA.

The Volcker

Rule

Section 13 of the Bank Holding

Company Act (commonly known as

the Volcker

Rule), generally prohibits a banking

entity such as

the Corporation or the

Bank from acquiring or

retaining any ownership

in, or acting as sponsor

to, a hedge fund

or private equity fund

(“covered

fund”).

The

Volcker

Rule

also

prohibits

these

entities

from

engaging,

for

their

own

account,

short-term

proprietary

trading of certain securities, derivatives, commodity futures and options on

these instruments.

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 and Home Mortgage Disclosure Act Regulations

The CRA encourages

banks to help meet

the credit needs of

the local communities in

which they offer

services, including low- and

moderate-income individuals, consistent with the safe and sound operation

of the bank.

The

CRA

requires

the

federal

supervisory

agencies,

part

the

general

examination

supervised

banks,

assess

bank’s

record of meeting the

credit needs of its

community,

assign a performance rating,

and take such record

and rating into account

in their

evaluation

of certain

applications by

such bank,

such as

an application

for approval

of a

merger

or the

establishment of

a branch.

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.

June

2022,

the

U.S.

federal

banking

regulatory

agencies

issued

joint

proposal

amend

their

regulations

implementing

the

CRA.

The

proposed

rules

would

materially

revise

the

current

CRA

framework,

including

new

assessment

area

requirements,

new

methods of calculating

credit for lending, investment,

and service activities, and

additional data collection and

reporting requirements.

The proposed rule

included analysis indicating

a significant increase in

the thresholds for large

banks to receive “Outstanding”

ratings

in the future.

USA PATRIOT

Act and Other Anti-Money Laundering Requirements

As a regulated

depository institution,

FirstBank is subject

to the

Bank Secrecy

Act, which imposes

a variety of

reporting and

other

requirements,

including

the requirement

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.

January

2021,

major

legislative

amendments

U.S.

anti-money

laundering

requirements

became

effective

through

the

enactment

Division

the

National

Defense

Authorization

Act

for

fiscal

year

2021,

otherwise

known

the

Anti-Money

Laundering

Act

2020

(“AML

Act”).

The

AML

Act

includes

variety

provisions

designed

modernize

the

anti-money

laundering

regulatory

regime

and

remediate

gaps

the

U.S.’s

approach

anti-money

laundering

and

countering

the

financing

terrorism,

including the

creation of

a national

database of

absence corporate

beneficial ownership

along

with significantly

enhanced

reporting

requirements,

increased

penalties

for

Bank

Secrecy

Act

violations,

clarification

Suspicious

Activity

Report

filing

and

sharing

requirements,

and

provisions

addressing

the

adverse

consequences

“de-risking,”

namely,

the

practice

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

the

Bank,

comply

with

the

requirements

the

Bank

Secrecy

Act

the

USA

PATRIOT

Act

could

have

serious

legal

and

reputational

consequences

for

the

institution,

including

the

possibility

regulatory

enforcement

other

legal

actions,

such

significant

civil

monetary

penalties.

The

Corporation

also

required

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 information

about consumers to non-

affiliated

third

parties.

These

limitations

require

disclosure

privacy

policies

consumers

and,

some

circumstances,

allow

consumers to prevent disclosure of certain personal information to

a non-affiliated third party.

The

federal

banking

regulators

regularly

issue

guidance

regarding

cybersecurity

intended

enhance

cyber

risk

management

standards among financial

institutions. A financial

institution is expected

to establish multiple

lines of defense

and to ensure

their risk

management processes

address the

risk posed

by potential

threats to

the institution.

A financial

institution’s

management is

expected

maintain

sufficient

processes

effectively

respond

and

recover

the

institution’s

operations

after

cyber-attack.

financial

institution

also

expected

develop

appropriate

processes

enable

recovery

data

and

business

operations

critical

service

provider

the institution

falls

victim

this type

cyber-attack.

The Corporation’s

Information

Security

Program

reflects

these

requirements.

Limitations on Transactions with Affiliates

and Insiders

Certain transactions between FDIC-insured

banks financial institutions such

as FirstBank and its affiliates

are governed by Sections

23A and

23B of the

Federal Reserve Act

and by

Federal Reserve

Regulation W.

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

amount

equal

10%

such

bank’s

capital

stock

and

surplus,

and

contain

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,

those

provided

non-affiliate.

The

term

“covered

transaction”

includes

the

making

loans,

purchase

assets,

issuance

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.

addition,

Sections

22(h)

and

(g)

the

Federal

Reserve

Act,

implemented

through

Regulation

place

restrictions

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

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

extensions

credit

bank

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 governing

incentive-based compensation programs,

which applies

all

banking

organizations

regardless

asset

size.

This

guidance

uses

principles-based

approach

ensure

that

incentive-based

compensation arrangements

appropriately tie

rewards to

longer-term performance

and do

not undermine

the safety

and soundness

banking organizations

or create

undue risks

to the

financial system.

The interagency

guidance is

based on

three major

principles: (i)

balanced risk-taking

incentives; (ii) compatibility

with effective

controls and

risk management; and

(iii) strong

corporate governance.

The guidance further provides

that, where appropriate, the

banking agencies will take supervisory

or enforcement action to ensure

that

material deficiencies that pose a threat to the safety and soundness of the organization

are promptly addressed.

In May 2016, the federal financial regulators proposed

regulations (first proposed in 2011) governing

incentive-based compensation

practices at

covered

banking institutions,

which

would

include,

among

others,

all banking

organizations

with assets

$1 billion

greater.

Portions of these

proposed rules would

apply to the

Corporation and FirstBank.

Those applicable provisions

would generally

(i)

prohibit

types

and

features

incentive-based

compensation

arrangements

that

encourage

inappropriate

risk

because

they

are

“excessive”

“could

lead

material

financial

loss”

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

directors

(or

committee)

oversight

and

recordkeeping

and

disclosures

the

banking

institution’s

primary

regulatory

agency.

The

nature

and

substance

any

final

action

adopt

these

proposed rules, and the timing of any such action, are not known at this time.

On October 26,

2022, the SEC also

finalized a rule

that directs stock exchanges

to require listed companies

to implement clawback

policies

recover

incentive-based

compensation

from

current

former

executive

officers

the

event

certain

financial

restatements,

and requires

companies to

disclose their

clawback policies

and their

actions under

those policies.

The stock

exchanges

will be required to file their proposed listing standards with the SEC for

approval no later than 90 days following the publication of

the

final rules in

the Federal Register,

which must be

effective no

later than one

year following

such publication.

The rules are

therefore

not expected to take effect until mid-2023 at the earliest.

Prompt Corrective Action

The

“prompt

corrective

action”

provisions

the

FDIA

require

the

federal

bank

regulatory

agencies

take

prompt

corrective

action

against

any

insured

depository

institution

(“institutions”)

that

are

undercapitalized.

The

FDIA

establishes

five

capital

categories:

well-capitalized,

adequately

capitalized,

undercapitalized,

significantly

undercapitalized,

and

critically

undercapitalized.

Well-capitalized 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

the

Bank,

and

should

considered

conjunction

with

other

available

information

regarding

the

financial

condition

and

results of operations of such bank.

Deposit Insurance

FirstBank

subject

FDIC

deposit

insurance

assessments,

which

increased

for

all

banks,

including

FirstBank,

following

the

increase

deposit

insurance

coverage

$250,000

per

customer

and

the

FDIC’s

expanded

authority

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

its

loss

and

income

projections

least twice

year.

The

FDIC has

also

adopted

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.

On October 18, 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

also

concurrently

maintained

the

designated

reserve

ratio

for

the

DIF

for

2023.

The

increase

assessment

rate

schedules

intended to increase

the likelihood that

the reserve ratio

of the DIF

reaches the statutory

minimum of

1.35% by the

statutory deadline

of September 30, 2028. The new assessment rate schedules

will remain in effect unless and until the reserve

ratio meets or exceeds 2%

in order

to support growth

in the DIF

and progress

toward the FDIC’s

long-term goal

of a 2%

designated reserve

ratio. Progressively

lower assessment

rate schedules

will take

effect when

the reserve

ratio reaches

2% and

again when

it reaches

2.5%. The

Corporation

estimates an increase

of approximately 56%

in deposit insurance

expense for 2023

compared to the

FDIC insurance

expense levels in

2022.

FDIC Insolvency Authority

Under

Puerto

Rico banking

laws, the

OCIF may

appoint

the FDIC

as conservator

or receiver

of a

failed or

failing

FDIC-insured

Puerto Rican bank, and

the FDIA authorizes the FDIC

to accept such an appointment.

In addition, the FDIC has

broad authority under

the FDIA

to appoint

itself as

conservator

or receiver

of a

failed or

failing state

bank, including

a Puerto

Rican bank.

If the

FDIC is

appointed

conservator

receiver

bank

upon

the

bank’s

insolvency

the

occurrence

other

events,

the

FDIC

may

sell

transfer some, part or all

of a bank’s

assets and liabilities to another bank,

or liquidate the bank and pay

out insured depositors, as well

as uninsured

depositors and

other creditors

to the

extent of

the closed

bank’s

available assets.

As part

of its

insolvency authority,

the

FDIC has

the authority,

among other

things, to

take possession

of and

administer the

receivership

estate,

pay

out estate

claims, and

repudiate or

disaffirm certain

types of

contracts to

which the

bank was

a party

if the

FDIC believes

such contract

is burdensome

and

its disaffirmance

will aid

the

administration

of the

receivership.

The

FDIA

provides

that, in

the

event

the

liquidation

other

resolution of

an insured

depository institution,

including the

Bank, the

claims of

depositors of

the institution

(including the

claims of

the

FDIC

subrogee

insured

depositors)

and

certain

claims

for

administrative

expenses

the

FDIC

receiver

would

have

priority over

other general

unsecured claims

against the

institution. If

the Bank

were to

fail, insured

and uninsured

depositors, along

with the

FDIC, would

have priority

in payment

ahead of

unsecured, non-deposit

creditors, including

the Corporation,

with respect

any extensions of credit they have made to such insured depository institution.

Activities and Investments

The

principal

activities

FDIC-insured,

state-chartered

banks,

such

FirstBank,

are

generally

limited

those

that

are

permissible for national

banks. Similarly,

under regulations dealing

with equity investments, an

insured state-chartered bank

generally

may not directly

or indirectly acquire or

retain any equity

investments of a type,

or in an amount,

that is not permissible

for a national

bank.

Federal Home Loan Bank System

FirstBank is

a member

of the

FHLB system.

The FHLB

system consists

of eleven

regional FHLBs

governed and

regulated by

the

Federal

Housing

Finance

Agency.

The

FHLBs

serve

reserve

credit

facilities

for

member

institutions

within

their

assigned

regions.

FirstBank is a member

of the FHLB of

New York

and, as such,

is required to

acquire and hold

shares of capital

stock in the

FHLB

of New York

in an amount calculated

in accordance with the

requirements set forth

in applicable laws and

regulations. FirstBank is in

compliance

with

the

stock

ownership

requirements

the

FHLB

New

York.

All

loans,

advances

and

other

extensions

credit

made

the

FHLB

FirstBank

are

secured

portion

FirstBank’s

mortgage

loan

securities

portfolios,

certain

other

investments and the capital stock of the FHLB held by FirstBank.

The board of

directors of each

FHLB can increase

the minimum investment

requirements if it

has concluded that

additional capital

is required to meet its own regulatory capital requirements. Any

increase in the minimum investment requirements outside of

specified

ranges requires

the approval of

the Federal Housing

Finance Agency.

Because the extent

of any obligation

to increase our

investment

in any of

the FHLBs depends

entirely upon

the occurrence of

a future

event, the

amount of any

future investment

in the capital

stock

of the FHLBs is not determinable.

Ownership and Control

Because

FirstBank’s

status

FDIC-insured

bank,

defined

the

Bank

Holding

Company

Act,

the

Corporation,

the

owner of

FirstBank’s

common stock,

is subject to

certain restrictions

and disclosure

obligations under

various federal laws,

including

the

Bank

Holding

Company

Act

and

the

Change

Bank

Control

Act

(the

“CBCA”).

Regulations

adopted

pursuant

the

Bank

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

concert)

will own,

control

hold

the

power

vote

greater

percentage

of that

class of

voting

securities

immediately

after

the

transaction.

The

concept

acting

concert

broad

and

subject

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

prescribe

standards

safety

and

soundness.

Bank

regulators

have

various

remedies

available

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

unsound

practices,

require

affirmative

actions

correct

any

violation

practice,

issue

administrative

orders

that

can

judicially

enforced,

direct

increases

capital,

direct

the

sale

subsidiaries

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

the

remedies

described above,

and other

sanctions. In

addition, the

FDIC may

terminate a

bank’s

deposit insurance

upon a

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.

Brokered Deposits

FDIC regulations

adopted

under the

FDIA govern

the receipt

of brokered

deposits by

banks. Well

-capitalized

institutions are

not

subject

limitations

brokered

deposits,

while

adequately-capitalized

institutions

are

able

accept,

renew

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

brokered

deposits.

October

2020,

the

FDIC

adopted

revisions

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.

COVID-Related Regulatory Activities

During 2020, the federal

banking agencies took several

actions to mitigate the

stress on regulated banks

resulting from the COVID-

pandemic.

These

actions

were

generally

designed

facilitate

the

ability

banks

provide

responsible

credit

and

liquidity

businesses and individuals

affected by

the COVID-19 pandemic,

and mitigate the

distorting effects

under regulatory

capital and other

requirements

resulting

from

the

pandemic.

addition

the

CECL

regulatory

capital

relief

discussed

above,

the

banking

agencies

adopted regulations

that, among

other things:

neutralized the

regulatory capital

and liquidity

effects

of banks

participating

in certain

COVID-related

Federal

Reserve

liquidity

facilities;

deferred

appraisal

and

valuation

requirements

after

the

closing

certain

residential

and

commercial

real

estate

transactions;

provided

temporary

relief

for

banks

from

the

FDIC’s

audit

and

reporting

requirements

for banks

that experienced

large

cash inflows

resulting

from participation

in the

SBA’s

PPP and

other COVID-related

facilities, or

otherwise resulting

from the

effects of

government stimulus

efforts.

These regulatory

actions were

taken in

conjunction

with

federal

financial

regulatory

efforts

encourage

banks

and

other

depositories

provide

responsible

credit

and

other

financial

assistance to consumers and small businesses in response to the pandemic.

Puerto Rico Banking Law

commercial

bank

organized

under

the

laws

the

Commonwealth

Puerto

Rico,

FirstBank

subject

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”).

The Banking Law

contains various provisions

relating to FirstBank

and its affairs,

including its incorporation

and organization,

the

rights and responsibilities of

its directors, officers and

stockholders and its corporate powers,

lending limitations, capital requirements,

and investment requirements. In addition,

the Commissioner is given extensive rule-making

power and administrative discretion under

the Banking Law.

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

the

following

securities

combination

thereof:

(i) legal

tender

the

United

States;

(ii) checks

banks

trust

companies

located in any

part of Puerto

Rico that are

to be presented

for collection during

the day following

the day on

which they are

received;

(iii) money deposited

in other

banks provided

said deposits

are authorized

by the

Commissioner and

subject to

immediate collection;

(iv) federal

funds

sold

to any

Federal

Reserve

Bank

and

securities

purchased

under

agreements to

resell

executed

by the

bank

with

such funds

that are

subject to

be repaid

to the

bank on

or before

the close

of the

business day;

and

(v) any other

asset that

the

Commissioner identifies from time to time.

Section

the

Banking

Law

permits

Puerto

Rico

commercial

banks

make

loans

any

one

person,

firm,

partnership

corporation in an aggr

egate amount of up

to 15% of the sum

of: (i) the bank’s

paid-in capital; (ii) the bank’s

reserve fund; (iii) 50% 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% of the amount of the

loan, the aggregate maximum amount may

reach 33.33% of

the sum of

the bank’s

paid-in capital, reserve

fund, 50% 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,

the

Commonwealth

Puerto

Rico,

bonds,

not

default,

municipalities

instrumentalities

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 amount equal to the total paid-in-capital of the bank.

The

Banking

Law

also

provides

that

when

the

expenditures

Puerto

Rico

commercial

bank

are

greater

than

its

receipts,

the

excess of the expenditures

over receipts must be

charged against the

undistributed profits of the

bank, and the balance,

if any,

charged

against

the

reserve

fund,

as a

reduction

thereof.

there

is no

reserve

fund

sufficient

to cover

such balance

whole or

part,

the

outstanding amount

must be

charged against

the capital

account and

no dividend

may be declared

until said

capital has

been restored

to its original amount and the amount in the reserve fund equals 20% of the original

capital.

The Finance Board, which

is composed of nine members

from enumerated Puerto Rico

Government agencies, instrumentalities and

public

corporations,

including

the

Commissioner,

has

the

authority

regulate

the

maximum

interest

rates

and

finance

charges

that

may be

charged on

loans to

individuals

and unincorporated

businesses in

Puerto Rico.

The current

regulations of

the Finance

Board

provide that the applicable

interest rate on loans to

individuals and unincorporated

businesses, including real estate

development loans

but excluding certain

other personal and

commercial loans

secured by mortgages

on real estate

properties, is

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 and

FirstBank

Overseas

Corporation

were

created

under

Puerto

Rico

Act

52-1989,

amended,

known

the

“International

Banking

Center

Regulatory

Act”

(the

IBE

Act

52),

which

provides

for

total

Puerto

Rico

tax

exemption

net

income

derived

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

IBE

may

not be

initiated

without

the

prior

approval

of the

Commissioner.

The

IBE

Act

and

the regulations

issued

thereunder

the

Commissioner

(the

“IBE

Regulations”)

limit

the

business

activities

that

may

carried

out

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

Puerto

Rico

books

and

records

its

transactions

the

ordinary

course

business.

FirstBank

IBE

and

FirstBank

Overseas

Corporation

are also

required to

submit to

the Commissioner

quarterly

and annual

reports of

their financial

condition and

results of

operations, including annual audited financial statements.

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.

In 2012, the Puerto Rico

government approved Act Number

273 (“Act 273”).

Act 273 replaces, prospectively,

IBE Act 52 with the

objective of

improving the

conditions for

conducting international

financial transactions

in Puerto Rico.

An IBE

existing on

the date

of approval

of Act

273, such

as FirstBank

IBE and

FirstBank Overseas

Corporation, can

continue operating

under IBE

Act 52,

or it

can

voluntarily

convert

International

Financial

Entity

(“IFE”)

under

Act

273

may

broaden

its

scope

Eligible

IFE

Activities, as defined

below,

and obtain

a grant of

tax exemption under

Act 273. As

of the date

of the issuance

of this Annual

Report

on Form 10-K, FirstBank IBE and FirstBank Overseas Corporation

are operating under IBE Act 52.

IFEs

are

licensed

the

Commissioner

and

authorized

to conduct

certain

Act

273

specified

financial

transactions

(“Eligible

IFE

Activities”). Once licensed, an

IFE can request a grant

of tax exemption (“Tax

Grant”) from the Puerto Rico

Department of Economic

Development

and Commerce,

which will

enumerate

and secure

the following

tax benefits

provided by

Act 273

as contractual

rights

(

i.e.

, regardless of future changes in Puerto Rico law) for a 15-year period:

(i)

to the IFE:

●

a fixed 4% Puerto Rico income tax rate on the net income derived by the IFE from

its Eligible IFE Activities; and

●

full property and municipal license tax exemptions on such activities.

(ii)

to its shareholders:

●

6% income tax rate on distributions to Puerto Rico resident

shareholders of earnings and profits derived from the Eligible IFE

Activities; and

●

full Puerto Rico income tax exemption on such distributions to non-Puerto

Rico resident shareholders.

The primary purpose of IFEs

is to attract Unites States and

foreign investors to Puerto Rico.

Consequently,

Act 273 authorizes IFEs

to engage

in traditional

banking and

financial transactions,

principally

with non-residents

of Puerto

Rico. Furthermore,

the scope

Eligible IFE Activities encompasses a wider variety of transactions than

those previously authorized to IBEs.

Act

187,

amended,

enacted

November

17,

2015,

requires

IBE

obtain

from

the

Commissioner

Certificate

Compliance every two years that certifies its compliance with the provisions

of IBE Act 52.

Puerto Rico Income Taxes

Under the

Puerto Rico Internal

Revenue Code

of 2011,

as amended (the

“2011 PR

Code”), the

Corporation and

its subsidiaries are

treated

separate

taxable

entities

and

are

not

entitled

file

consolidated

tax

returns

and,

thus,

the

Corporation

generally

not

entitled

utilize

losses

from

one

subsidiary

offset

gains

another

subsidiary.

Accordingly,

obtain

tax

benefit

from

net

operating

loss

(“NOL”),

particular

subsidiary

must

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

The 2011

PR 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.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

maximum

statutory

rate

Puerto

Rico,

which

has

resulted

mainly

from

investments

government

obligations

and

MBS generally

exempt

from

U.S. and

Puerto

Rico

income

taxes and

from

doing business

through an

IBE unit

of the

Bank, and

through the

Bank’s

subsidiary,

FirstBank Overseas

Corporation, whose

interest

income and gain on sales is exempt from Puerto Rico income taxation.

United States Income Taxes

Puerto

Rico

corporation,

First

BanCorp.

treated

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

FirstBank Insurance Agency

is registered as an

insurance agency with

the Insurance Commissioner of

Puerto Rico and is subject

regulations

issued

the

Insurance

Commissioner

and

the

Division

Banking

and

Insurance

Financial

Regulation

the

USVI

relating

to,

among

other

things,

the

licensing

employees

and

sales

and

solicitation

and

advertising

practices,

and

the

Federal

Reserve as to certain consumer protection provisions mandated by

the Gramm-Leach-Bliley Act and its implementing regulations.

Mortgage Banking Operations

addition

FDIC

and

CFPB

regulations,

FirstBank

subject

the

rules

and

regulations

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

prospective

borrowers

and

fix

maximum

loan

amounts,

and,

with

respect

loans,

fix

maximum

interest

rates.

Moreover,

lenders

such

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

all

times

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,

such,

subject

regulation

the

Commissioner,

with

respect

to,

among

other

things,

licensing requirements and the establishment of maximum origination

fees on certain types of mortgage loan products.

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”),

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

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

•

Code of Ethical Conduct applicable to all employees

•

Independence Principles for Directors

•

2021 ESG Report

•

Sustainability Policy

The Corporate

Governance Guidelines and

Principles and the

aforementioned charters

and documents may

also be obtained

free of

charge

sending

a written

request

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 Annual

Report on 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 Annual

Report on Form 10-K

or any other report

or document

that the Corporation files with or furnishes to the SEC.

Item 1A.

Risk Factors

Below

is a

discussion

about material

risks

and

uncertainties that

could

impact

the Corporation’s

businesses,

results

of operations

and financial condition,

including by causing

the Corporation’s

actual results to differ

materially from those projected

in any forward-

looking statements. Other risks

and uncertainties, including those

not currently known to the

Corporation or its management and

those

that

the

Corporation

its management

currently

deems

immaterial,

could

also

materially

adversely

affect

the Corporation

future periods. Thus, the following

should not be considered a complete

discussion of all of the risks and

uncertainties the Corporation

may face. See the discussion under “Forward-Looking Statements,” in

this Annual Report on Form 10-K.

RISKS RELATING TO

THE BUSINESS ENVIRONMENT AND OUR INDUSTRY

The impacts

of rising

interest rates

and inflation

may reduce

demand for

new loan

originations and

refinancings and

increase

competition for borrowers, thus reducing net interest income.

Shifts in

short-term

interest rates

have

reduced net

interest income

in the

past and,

in the

future, may

reduce net

interest income,

which

is the

principal

component

of our

earnings. Net

interest income

is the

difference

between

the amounts

received by

us on

our

interest-earning assets and the

interest paid by us on

our interest-bearing liabilities. Differences

in the re-pricing structure of

our assets

and liabilities

may result

in changes

in our

profits when

interest rates

change.

For instance,

higher interest

rates increase

the cost

mortgage and

other loans

to consumers

and businesses

and may

reduce future

demand for

such loans,

which may

negatively impact

our

profits

reducing

the

amount

loan

interest

income

due

declines

volume.

Interest

rates

are

highly

sensitive

many

factors that

are beyond

our control,

including general

economic conditions,

inflationary trends,

changes in

government spending

and

debt issuances and

policies of various

governmental and

regulatory agencies,

in particular,

the Federal Reserve.

Throughout 2022

the

Federal Reserve raised

the target range

for the federal

funds rate on seven

separate occasions and

has indicated that

ongoing increases

may be appropriate.

Additionally,

basis risk is

the risk of

adverse consequences resulting

from unequal changes

in the difference,

also referred to

as the

“spread” or

basis, between

the rates

for two

or more

different

instruments with

the same

maturity and

occurs when

market rates

for

different financial

instruments or

the indices

used to

price assets and

liabilities change

at different

times or

by different

amounts. For

example, the interest expense

for liability instruments might

not change by the

same amount as interest income

received from loans

investments.

the

extent

that

the

interest

rates

loans

and

borrowings

change

different

rates

and

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.

Further,

rising interest

rates reduce

the value

of our

fixed-rate securities.

Any unrealized

loss from

these portfolios

impacts other

comprehensive

income, stockholders’

equity,

and the

tangible common

equity ratio.

Any realized

loss from

these portfolios

impacts

regulatory capital ratios.

Changes in prepayments may adversely affect net interest income.

Net

interest

income

could

also

affected

prepayments

MBS.

Generally,

when

rates

rise,

prepayments

principal

and

interest

will

decrease,

and

the

duration

MBS

securities

will

increase.

Conversely,

when

rates

fall,

prepayments

principal

and

interest

will

increase,

and

the

duration

mortgage-backed

securities

will

decrease.

Such

acceleration

the

prepayments

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

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 transition

from LIBOR

to alternative

rates and

other potential

interest rate

reforms may

affect the

interest rates

we pay

receive.

A transition away

from the widespread

use of LIBOR to

alternative rates is

underway and will

continue until full

cessation of this

reference

rate.

These

changes

may

cause

such

rates

perform

differently

than

the

past,

disappear

entirely,

have

other

consequences which cannot be predicted.

A group

of market

participants convened

by the

Federal

Reserve,

the

Alternative

Reference

Rate Committee

(the

“ARRC”),

has

selected

the

Secured

Overnight

Financing

Rate

(“SOFR”)

its

recommended

alternative

LIBOR.

The

Federal

Reserve

Bank

New

York

started

publish

SOFR

April

2018. SOFR

broad

measure

the

cost

overnight

borrowings

collateralized

Treasury

securities

that

was

selected

the

ARRC

due

the

depth

and

robustness

the

U.S.

Treasury

repurchase

market.

The

passage

the

Adjustable

Interest

Rate

Act

(the

“LIBOR

Act”)

U.S.

Congress,

and

the

Federal

Reserve’s

implementing

rule,

should decrease

the risk

of contracts

that are

not remediated

prior to

the cessation

deadline by

providing the

terms for

a transition

SOFR.

The

market

transition

away

from

LIBOR

alternative

reference

rate,

such

SOFR,

complex

and

could

have

range

adverse effects on our business, financial condition, and results of operations.

In particular, any such transition could:

●

Adversely

affect

the

interest

rates

received

paid

on,

the

revenue

and

expenses

associated

with

the

value

the

Corporation’s

LIBOR-based

assets

and

liabilities,

which

include

certain

variable

rate

loans,

primarily

commercial

and

construction

loans,

private

label

MBSs,

the

Corporation’s

junior

subordinated

debentures,

and

certain

other

financial

arrangements such

as derivatives.

As of

December 31,

2022, the

most significant

of the Corporation’s

LIBOR-based assets

and liabilities consisted of

$1.4 billion of variable-rate

commercial and construction

loans (including unused commitments),

$124.4

million

Puerto

Rico

municipalities

bonds

held

part

the

Corporation’s

held-to-maturity

debt

securities

portfolio, $44.6

million of

U.S. agencies

debt securities

and private

label MBS

held as

part of

the Corporation’s

available-

for-sale debt securities portfolio, and $183.8 million of junior subordinated

debentures;

●

Prompt

inquiries

other

actions

from

regulators

respect

the

Corporation’s

preparation

and

readiness

for

the

replacement of LIBOR with an alternative reference rate; and

●

Result in

disputes,

litigation

other

actions

with

counterparties

regarding

the

interpretation

and

enforceability

certain

fallback language in LIBOR-based contracts.

The

transition

away

from

LIBOR

alternative

reference

rate

has

required

the

transition

to,

development

of,

appropriate

systems and analytics

to effectively

transition the Corporation’s

risk management and

other processes from

LIBOR-based products

those based

on the

applicable alternative

reference rate,

such as

SOFR. The

LIBOR Transition

Working

Group (“LTWG”),

which is

composed

officers

the

major

areas

affected

such

Treasury,

Legal,

Corporate

Loans,

Credit,

Operations,

Systems,

Asset-

Liability Management, Risk, Accounting,

Financial Reporting, Public Relations, and

Strategic Planning, are in charge

of executing the

LIBOR transition workplan.

The LTWG

is overseen by the Corporation’s

Management Investments &

Asset-Liability Committee and

the Board

of Directors

Asset-Liability

Committee.

Effective

December

31, 2021,

the Corporation

discontinued

originations that

use

U.S.

Dollar

LIBOR

reference

rate.

addition,

the

Corporation

continues

working

with

the

update

systems,

processes,

documentation

and

models,

with

additional

updates

expected

through

2023.

There

can

guarantee

that

these

efforts

will

successfully mitigate the operational risks associated with the transition away

from LIBOR to an alternative reference rate.

The manner and impact of the transition from LIBOR to an alternative reference

rate, as well as the effect of these developments on

our funding costs, loan and investment securities portfolios, asset-liability management,

and business, is uncertain.

Difficult market

and general

economic conditions

have affected

the financial

industry and

may continue

to 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 adversely

affected

us in

the past

and in

the future

could adversely

affect

the

credit

performance

mortgage

loans,

and

result

significant

write-downs

asset

values

financial

institutions,

including

government-sponsored entities 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

estimate

losses

inherent

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

the borrowers

repay

their

loans, which

may

no longer

accurately estimated

and

which

may,

turn, impact the reliability of the models.

●

Our

ability

borrow

from

other

financial

institutions

engage

sales

mortgage

loans

third

parties

(including

mortgage

loan

securitization

transactions

with

government-sponsored

entities

and

repurchase

agreements)

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

our

industry

may

increase

our

compliance

costs

and

limit

our

ability

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

economic

growth,

business

activity

investor

business

confidence;

limitations

the

availability or

increases in

the cost

of credit

and capital;

increases in inflation

or interest rates;

high unemployment;

natural disasters;

epidemics and pandemics (such as the COVID-19 pandemic); or a combination

of these or other factors.

Additionally,

the

residential

mortgage

loan

origination

business

impacted

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, including the

series of interest rate

increases that occurred

in 2022, 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

operations.

addition,

any

additional

material

decline

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 enhancement.

The currently

evolving situation

related to

the ongoing

COVID-19 pandemic

may impact

the Corporation’s

business, financial

condition and results of operations.

The ongoing COVID-19

pandemic created a global

public health crisis that has

resulted in challenging

economic conditions for our

business

and

likely

continue

so.

The

economic

impact

the

COVID-19

pandemic

has

caused

significant

volatility

and

disruption

in the

financial markets

of Puerto

Rico and

the other

markets in

which the

Corporation operates.

Further,

the uncertainty

surrounding

future

economic

conditions

has

challenged

management's

ability

estimate

the

pandemic's

impact

credit

quality,

revenues, and assets values.

The Corporation

may also

face residual

risk related

to its

participation in

the SBA PPP

program established

by the

CARES Act

2020.

The Corporation’s

participation

the

SBA PPP

and

any

other

such

programs

stimulus

packages

may

give

rise to

claims,

including

by governments,

regulators,

or customers

or through

class action

lawsuits, or

judgments

against the

Corporation

that

may

result in the

payment of damages

or the imposition

of fines, penalties

or restrictions by

regulatory authorities, or

result in reputational

harm.

The

occurrence

any

the

foregoing

could

have

material

adverse

effect

the

Corporation’s

results

operations

financial condition.

The

full

extent

to which

the COVID-19

pandemic

further

impacts

our

business, results

operations,

and

financial

condition,

well

our

regulatory

capital

and

liquidity

ratios,

will

depend

future

developments,

which

are

highly

uncertain

and

cannot

predicted, including

the duration of

the COVID-19

pandemic and its

impact on

the global economy,

as well as

any future

resumption

of responsive

actions taken by

governmental authorities

and other third

parties. Even after

the COVID-19

pandemic has subsided,

may continue

to experience materially

adverse impacts to

our business and

our results of

operations as

a result of

its global economic

impact.

We operate in a highly

competitive industry and market area.

face

substantial

competition

all

areas

our

operations

from

variety

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

compete

effectively

depends

the

relative

performance

its

products,

the

degree

which

the

features

its

products

appeal

customers,

and

the

extent

which

the

Corporation

meets

clients’

needs

and

expectations.

The

Corporation’s

ability

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

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

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

has been, and

in the future

may

be,

adversely

affected

Puerto

Rico’s

economic

condition,

and

may

affected

actions

taken

the

Puerto

Rico

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

economic challenges in Puerto Rico.

A significant

portion

of the

Corporation’s

business activities

and credit

exposure

is concentrated

in the

Commonwealth of

Puerto

Rico, which has experienced an economic and fiscal crisis for more than a decade.

November

10,

2022,

the

Puerto

Rico

Planning

Board

(“PRPB”)

presented

the

Economic

Report

the

Governor,

which

provides

analysis

Puerto

Rico’s

economy

during

fiscal

year

2021

and

short-term

forecast

for

fiscal

years

2022

and

2023.

According to the

PRPB, Puerto Rico’s

real gross national

product (“GNP”) expanded

by 1.0% in fiscal

year 2021, significantly

above

the PRPB’s

original

baseline projection

of a

2.0%

contraction. According

to the

report, real

GNP growth

was primarily

driven by

sharp increase

in personal

consumption expenditures

reflecting the

relaxation of

COVID-related restrictions,

as well

as the

impact of

the

substantial

disaster

relief funding

deployed

over

the period.

lesser extent,

growth

fiscal

year

2021

was also

driven

by a

higher level of

investments in machinery,

equipment, and construction.

These favorable variances

were partially offset

by an increase

in imports,

a reduction

in exports,

and a

negative change

in the

level of

inventories. For

fiscal years

2022 and

2023, the

Puerto Rico

economy is forecasted to grow 4.0% and 0.7% in real

terms, according to the PRPB’s baseline

projection. Among the key assumptions

included in

this forecast

is the

positive impact

expected from

the ongoing

disbursements of

disaster recovery

funds ($2.8

billion and

$4.0 billion

in fiscal

years 2022

and 2023,

respectively),

as well

as the

stimulus from

remaining pandemic

relief funds

($1.1 billion

and $632

million in

fiscal years

2022 and

2023, respectively),

and the inclusion

of Puerto

Rico in

the Earned

Income Tax

Credit and

the Child Tax Credit

since 2021.

The

2022

Fiscal

Plan

contains

updated

macroeconomic

forecast

that

reflects

the

adverse

impact

the

pandemic-induced

recession at

the end of

fiscal year

2020, followed

by a

forecasted rebound

and recovery

in fiscal years

2021 through

2023. Similar

the

fiscal

plan,

the

2022

Fiscal

Plan

incorporates

real

growth

series

that

was

adjusted

for

the

short-term

income

effects

resulting from

the extraordinary

unemployment insurance

and other pandemic

-related direct transfer

programs. Specifically,

the 2022

Fiscal Plan

estimates that

Puerto Rico’s

GNP will

grow by

5.2% in

fiscal year

2022, followed

by a

0.6% growth

in fiscal

year 2023.

Excluding

the

effect

household

income

from

the

unprecedented

pandemic-related

federal

government

stimulus,

the

2022

Fiscal

Plan estimates that real GNP growth would be 2.6% and 0.9% in fiscal years

2022 and 2023, respectively.

Over the

past few

years, Puerto

Rico has

benefited from

historical levels

of federal

support, creating

new opportunities

to address

high-priority needs.

The 2022

Fiscal Plan

projects that

approximately $84

billion of

disaster relief

funding in

total, from

federal and

private sources, will be disbursed in the reconstruction process over a period

of 18 years (2018 to 2035).

As of December

31, 2022, the

Corporation had $338.9

million of direct

exposure to the

Puerto Rico government,

its municipalities

and public corporations. As of December 31, 2022, approximately

$183.4 million of the exposure consisted of loans and obligations

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

the

applicable

municipality

have

been

pledged

their

repayment,

and

$114.0

million

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

municipalities,

the

total

direct

exposure

also

included

$10.8

million

loans

affiliate

PREPA,

$27.4

million

loans to

an agency

of the

Puerto Rico

central

government, and

obligations

of the

Puerto Rico

government,

specifically a

residential

pass-through

MBS

issued

the

Housing

Finance

Authority

(“PRHFA”),

amortized

cost

$3.3

million

part

its

available-for-sale debt securities portfolio (fair value of $2.2 million as of

December 31, 2022).

addition,

December

31,

2022,

the

Corporation

had

$84.7

million

exposure

residential

mortgage

loans

that

are

guaranteed

by the

PRHFA.

Residential

mortgage

loans guaranteed

by the

PRHFA

are

secured

the underlying

properties

and

the

guarantees serve to cover

shortfalls in collateral in the event

of a borrower default.

The regulations adopted by

the PRHFA

require the

establishment of

adequate reserves

to guarantee

the solvency

of its

mortgage loans

insurance program

As of

June 30,

2021, the

most

recent date

as of

which information

is available,

the PRHFA

had a

liability of

approximately $5

million as

an estimate

of the

losses

inherent in the portfolio.

December

31,

2022,

the

Corporation

had

$2.3

billion

of public

sector

deposits

Puerto

Rico.

Approximately

24%

the

public sector deposits as of

December 31, 2022 was from municipalities

and municipal agencies in Puerto

Rico and 76% was from

the

public corporation, the Puerto Rico central government and agencies, and

U.S. federal government agencies in Puerto Rico.

Instability in economic conditions,

delays in the receipt of

disaster relief funds allocated

to Puerto Rico, and

the potential impact on

asset

values

resulting

from

past

future

natural

disaster

events,

when

added

Puerto

Rico’s

ongoing

fiscal

challenges,

could

materially adversely affect our business, financial condition, liquidity,

results of operations and capital position.

deterioration

economic

conditions

the

U.S.

Virgin

Islands

and

British

Virgin

Islands

could

harm

our

results

operations.

For

many

years,

the

USVI

has

been

experiencing

number

fiscal

and

economic

challenges

that

have

deteriorated

the

overall

financial

and

economic

conditions

the

area.

March

2022,

the

United

States

Bureau

Economic

Analysis

(the

“BEA”)

released

its

estimates

gross

domestic

product

(“GDP”)

for

2020.

According

the

BEA,

the

USVI’s

real

GDP

decreased

2.2%.

Also, the

BEA revised

its previously

published

real GDP

growth

estimate for

2019 from

2.2%

to 2.8%.

According

to the

BEA, the

decline in real

GDP for 2020

reflected decreases

in exports

of services, private

fixed investment,

personal consumption

expenditures,

and

government

spending

primarily

as a

result

of the

effects

the COVID-19

pandemic.

These decreases

were partly

offset

by an

increase in

private inventory

investment, reflecting

an increase

in crude

oil and

other petroleum

products imported

and stored

in the

islands. In

addition, there

were reductions

in imports

of goods

including consumer

goods and

equipment, and

in imports

of services.

According

to the

BEA, expenditures

funded by

the various

federal grants

and transfer

payments are

reflected in

the GDP

estimates;

however,

the full

effects

of the

pandemic

cannot be

quantified in

the GDP

statistics for

the USVI

because the

impacts are

generally

embedded in source data and cannot be separately identified.

Nonetheless,

over

the

past

two

years,

the

USVI

has

been

recovering

from

the

adverse

impact

caused

COVID-19

and

has

continued to make progress

on its rebuilding efforts

related to Hurricanes Irma

and Maria in 2017.

According to data published

by the

government,

over

$1.4

billion

disaster

recovery

funds

were

disbursed

during

2021

and

2022,

up 22%

from

the

preceding

2-year

period. On the fiscal front, revenues have trended positively

and the USVI Government successfully completed the

restructuring of the

government employee

retirement system. Although

no official

GDP data has

been released

for 2021

and/or 2022, the

aforementioned

developments,

well

the

positive

trend

reflected

key

economic

indicators

such

visitor

arrivals,

non-farm

payrolls

and

unemployment rate potentially indicate that the territory has experienced

an overall economic recovery since 2020.

PROMESA

does

not

apply

to the

USVI

and,

as such,

there

is currently

no federal

legislation

permitting

the restructuring

the

debts of

the USVI

and

its public

corporations

and instrumentalities.

the extent

that the

fiscal condition

of the

USVI government

continues to

deteriorate, the

U.S. Congress

or the government

of the

USVI may enact

legislation allowing

for the restructuring

of the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of

December 31,

2022, the

Corporation had

$38.0 million

in loans

to USVI

government and

public corporations,

compared to

$39.2 million as of December 31,

2021. As of December 31, 2022,

all loans were currently performing

and up to date on principal

and

interest payments.

deterioration

economic

conditions

USVI

and

the

BVI

region

could

adversely

affect

our

business,

financial

condition,

liquidity, results of operations

and capital position.

We are subject to ESG risks that

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

The

Corporation

subject

variety

risks

arising

from ESG matters. ESG matters

include

climate

risk,

hiring

practices,

the

diversity

of our

work force,

and racial

and

social justice

issues involving

our personnel,

customers

and

third

parties with

whom

otherwise do

business. Risks arising

from ESG matters may

adversely affect,

among other things,

our reputation

and the market

price

of our securities.

For

example,

may

exposed

negative

publicity

based

the

identity

and

activities

those

whom

lend

and

with

which we

otherwise do

business and

the public’s

view of

the approach

and performance

of our

customers and

business partners

with

respect

to ESG matters.

Any

such

negative

publicity

could

arise

from

adverse

news

coverage

traditional

media

and

could

also

spread

through

the

use

social

media

platforms.

The

Corporation’s

relationships

and

reputation

with

its

existing

and

prospective

customers

and

third

parties

with

which

business

could

damaged

were

become

the

subject

any

such

negative

publicity. This,

in turn,

could have

an adverse

effect

our ability

attract

and retain

customers

and

employees

and could

have

negative impact on our business, financial condition

and results of operations.

Additionally,

concerns over

the long-term

impacts of

climate change

have led

and will

continue to

lead to

governmental efforts

mitigate

those

impacts.

Consumers

and

businesses

also

may

change

their

behavior

their

own

result

these

concerns.

The

Corporation

and

its

customers

will

need

respond

new

laws

and

regulations

well

consumer

and

business

preferences

resulting from climate change concerns.

Finally,

regulatory

authorities,

shareholders,

customers

and

other

stakeholders

are

considering

how

corporations

are

addressing

ESG

issues.

Regulations

already

adopted

being

considered

may

expand

mandatory

and

voluntary

reporting,

diligence

and

disclosure on specific ESG topics, such as greenhouse gas

emissions and other climate matters. These requirements

would likely result

increased ESG related

compliance

costs,

which

could

result

increases

our

overall

operational

costs.

Failure

adapt

comply

with

regulatory

requirements

investor

stakeholder

expectations

and

standards

could

negatively

impact

our

reputation,

ability to do business with certain partners, and our stock price.

Our

results

operations

could

adversely

affected

natural

disasters,

political

crises,

negative

global

climate

patterns

other catastrophic events.

Natural

disasters, which

nature and

severity may

be impacted

by climate

change,

such as

hurricanes,

floods, extreme

cold

events

and

other

adverse

weather

conditions;

political

crises,

such

terrorist

attacks,

war,

labor

unrest,

other

political

instability,

trade

policies

and

sanctions,

including

the

repercussions

the

ongoing

conflict

between

Russia

and

Ukraine;

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

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

particular

region

globally,

well

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 may materially

adversely affect the Corporation's business and results of operations.

Concerns over

the long-term effects

of climate change

have led and

will continue to

lead to governmental

efforts around

the world

mitigate

those

impacts.

Consumers

and

businesses

also

may

voluntarily

change

their behavior

as a

result

these

concerns.

The

Corporation

and

its

customers

will

need

respond

new

laws

and

regulations

well

consumer

and

business

preferences

resulting

from

climate

change

concerns.

The

Corporation

and

its

customers

may

face

cost

increases,

asset

value

reductions

and

operating process

changes. The

impact on

our customers

will likely

vary depending

on their

specific attributes,

including reliance

or role in fossil fuel activities. Among the impacts to the Corporation, we could

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

effective

protecting

the

Corporation from the negative impact of new laws and regulations or changes in

consumer or business behavior.

Deterioration in collateral values may result in additional losses.

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

our investments.

had a

commercial and

construction loan

portfolio held

for investment

in the

amount of

$5.4 billion

as of

December 31,

2022.

Due to

their nature,

these loans

entail a

higher credit

risk than

consumer and

residential mortgage

loans, since

they are larger

in size,

concentrate

risk

single

borrower

and

are

generally

sensitive

economic

downturns.

Furthermore,

the

case

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

problem

loans,

which

would

likely

accelerate

the

recognition

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,

commercial and

residential mortgage

loan portfolios,

whether

located in

Puerto Rico

or elsewhere,

would result

in increased

credit losses. As

of December

31, 2022,

approximately

20%

and 25% of our loan portfolio held for investment consisted of commercial

mortgage and residential real estate loans, respectively.

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.

December

31,

2022,

our

commercial

mortgage

and

construction

real

estate

loans

held

for

investment in

the Puerto

Rico and

Virgin

Islands regions

and Florida

region amounted

to $1.9

billion and

$0.6 billion,

respectively,

which constituted 22% of the total loan portfolio held for investment.

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.

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,

the

future,

may

require,

increases

our

credit

loss

expense

loans. Any

such

increase would have an adverse effect on our future financial condition

and results of operations.

Labor shortages and constraints in the supply chain could adversely affect

our clients’ operations as well as our operations.

Many

sectors in

Puerto

Rico, the

United

States, the

Virgin

Islands and

around

the world

are experiencing

a shortage

of workers.

Many of our commercial clients have

been impacted by this shortage along with

disruptions and constraints in the supply

chain, which

could

adversely

impact

their

operations

and

could

lead

reduced

cash

flow

and

difficulty

making

loan

repayments.

The

Corporation’s

industry

has

also

been

affected

the

shortage

workers,

well

increasing

wages

for

entry

level

and

certain

professional roles. This may

lead to open positions remaining

unfilled for longer periods of time,

which may affect the level of

service

provided by the Corporation, or a need to increase wages to attract workers.

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.

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

a bankruptcy

insolvency

proceeding

involving

one of

such counterparties,

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

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

customer

deposits,

the

issuance

brokered

CDs,

and

advances

from

the

FHLB

New

York

maintain its lending

activities and to replace

certain maturing liabilities.

As of December 31,

2022, we had $105.8

million in brokered

CDs outstanding,

representing approximately

1% of our

total deposits. Approximately

$55.7 million, or

53% in brokered

CDs mature

over the twelve months

ending December 31, 2023, and

the average remaining term to

maturity of the brokered CDs outstanding

as of

December 31, 2022 was approximately 1.6

years. None of these brokered CDs are callable at the Corporation’s

option. In addition, the

Corporation had

$675 million

of FHLB

advances outstanding

as of

December 31,

2022, of

which $475.0

million are

short-term and

are scheduled

to mature

within the

next three

months and

$200 million

are long-term

and are

scheduled to

mature over

three to

five

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

funding

may

carry

higher

costs

than

sources

currently

utilized.

are

required

rely

heavily

expensive funding sources, profitability would be adversely affected.

may

determine

seek

debt

financing

the

future

achieve

our

long-term

business

objectives.

Additional

borrowings,

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

not be on acceptable terms. The availability of additional

financing will depend

variety

factors,

such

market

conditions,

the

general

availability

credit,

our

credit

ratings

and

our

credit

capacity.

The

recent rising interest

rate environment has

and may continue

to increase the

borrowing costs associated

with any additional

financing.

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

external

funding

and/or

cause

external

funding

expensive,

which

could

turn

adversely

affect

results

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

service

the

interest

payments

our

TRuPs

and

other

obligations.

FirstBank

limited

law

its

ability

make

dividend

payments

and other

distributions

to us

based

on its

earnings and

capital position.

A failure

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.

Non-performing

assets decreased

by $28.9

million to

$129.2 million

as of

December 31,

2022, or

18%, from

$158.1 million

as of

December 31,

2021. As of

December 31, 2022,

we continued to

have a relevant

amount of nonaccrual

loans, even though

nonaccrual

loans decreased

by $20.8

million to

$89.9 million

as of

December 31,

2022, or

19%, from

$110.7

million as

of December

31, 2021.

Our

nonaccrual

loans represent

approximately

1% of

our $11.6

billion

loan

portfolio

as of

December 31,

2022.

If we

are unable

effectively maintain the quality

of our loan portfolio, our financial

condition and results of operations

may be materially and adversely

affected.

Our allowance for credit losses (“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

leads to

reductions in

our income

from operations,

in order

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

loans in

the

future as

result

new

information

regarding

existing

loans,

future

increases

nonaccrual

loans

beyond

what

was

forecasted,

foreclosure

actions

and

loan

modifications,

changes

current

and

expected

economic

and

other

conditions

affecting

borrowers

for

other

reasons

beyond

our

control.

addition,

the

bank

regulatory

agencies

periodically

review

the

adequacy

our

ACL

loans

and

may

require

increase

the

credit

loss

expense

loans

the

recognition

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

the

appropriate

level

the

ACL

loans

inherently

involves

high

degree

subjectivity

and

requires

management

make

significant estimates and judgments

regarding current credit risks

and future trends, all

of which may undergo

material changes. If our

estimates

prove

incorrect,

our

ACL

loans

may

not

sufficient

cover

losses

our

loan

portfolio

and

our

credit

loss

expense on loans could increase substantially.

In addition, any increases in our credit loss expense on

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

adverse effect on our future capital ratios, financial condition

and results of operations.

The Corporation’s force-placed

insurance policies could be disputed by the customer.

The Corporation

maintains force-placed

insurance policies

that have

been put

into place

when a

borrower’s

insurance policy

on a

property has been canceled,

lapsed or was deemed

insufficient and the

borrower did not

secure a replacement policy.

A borrower may

make

a claim

against the

Corporation

under

such force

-placed insurance

policy and

the failure

of the

Corporation

to resolve

such a

claim

the

borrower’s

satisfaction

may

result

dispute

between

the

borrower

and

the

Corporation,

which

not

adequately

resolved, could have an adverse effect on the Corporation.

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

connection

with

the

sale

and

securitization

loans,

are

required

make

variety

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

the

loan,

and

relate

to,

among

other

things,

the

following:

(i)

compliance

with

laws

and

regulations;

(ii)

underwriting

standards;

(iii)

the

accuracy

information

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

saleable

may

saleable

only

significant

discount.

such a

loan

sold

before

detect

non-compliance,

may

obligated

to repurchase

the

loan

and

bear

any

associated

loss directly,

may

obligated

indemnify

the purchaser

against

any

loss,

either

which

could

reduce

our cash

available

for

operations

and

liquidity.

Management

believes

that

it has

established

controls

ensure

that

loans

are

originated

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.

may fail

to identify

and manage

risks related

to a

variety of

aspects of

our business,

including, but

not limited

to, operational

risk,

interest

rate

risk,

trading

risk,

fiduciary

risk,

legal

and

compliance

risk,

liquidity

risk

and

credit

risk.

have

adopted

and

periodically

improve

various

controls,

procedures,

policies

and

systems

monitor

and

manage

risk.

Any

improvements

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,

could

incur

losses,

suffer

reputational

damage,

find

ourselves

out

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

operational

functions,

including

information

processing

and

financial

market

settlement

functions.

addition,

our

customers,

vendors

and

counterparties

could

suffer

from

such

events.

Should

these

events

affect

us,

the

customers,

vendors

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

operational

losses,

may

unable

accurately

estimate

our

potential

exposure,

and

any

reserves

establish

cover

operational

losses

may

not

sufficient

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 failure to attract and retain a qualified workforce could harm our overall business

and results of operations.

The Corporation’s

success depends,

in large

part, on its

ability to attract

and retain

skilled, experienced personnel.

Competition for

qualified

candidates

the

activities

and

markets

that

the

Corporation

and

FirstBank

serves

intense,

and

while

the

Corporation

invests significantly

in the training

and development of

its employees,

it may not

be able to

hire people or

to retain them.

In addition,

high inflation

has impacted

both cost

structure and

employee demand

for wage

growth, which

may lead

to sustained

higher turnover

rates.

the

Corporation

unable

retain

its

most

qualified

employees,

its

performance

and

competitive

positioning

could

materially adversely affected.

Our businesses may be adversely affected by litigation.

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

securities

class

action

litigation

our

shareholders

and

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

adverse

effect

our

reputation

among

investors

customer

demand

for

our

products

and

services.

securities

class

action

suit

against

the

future

could

result

substantial

costs,

potential

liabilities

and

the

diversion

management’s

attention

and

resources.

may

unable

accurately

estimate

our

exposure

litigation

risk

when

record

balance

sheet

reserves for probable loss contingencies.

As a result, reserves we establish to

cover any settlements or judgments may

not be sufficient

cover

our

actual

financial

exposure,

which

has

occurred

the

past

and

may

occur

the

future,

resulting

material

adverse

impact on our consolidated results of operations or financial condition.

the

ordinary

course

our

business,

are

also

subject

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

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.

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

the

highest

standards

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

changes

our

businesses,

the

market

places

which

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.

If our goodwill or other intangible assets become impaired, we may be

required to record a significant charge to earnings.

Goodwill is

tested for

impairment on

an annual

basis, and

more frequently

if events

or circumstances

lead management

to believe

the values of

goodwill may

be impaired.

Other intangible assets

are amortized

over the projected

useful lives of

the related intangible

asset,

generally

straight-line

basis,

and

these

assets

are

reviewed

periodically

for

impairment

when

events

changes

circumstances

indicate

that

the

fair

value

may

not

exceed

their

carrying

amount.

Factors

that

may

considered

change

circumstances

indicating

that

the

carrying

value

the

goodwill

amortizable

intangible

assets

may

not

recoverable

includes

reduced future

cash flow estimates,

decreases in the

current market

price of

our common

shares, negative

information concerning

the

terminal value of similarly situated insured depository institutions, and

slower growth rates in the industry.

The goodwill

annual impairment

evaluation process

includes a

qualitative assessment

of events

and circumstances

that may

affect

the reporting unit's fair value

to determine whether it was more

likely than not that the fair

value of any reporting unit was

less than its

carrying amount, including goodwill. If the result of the

qualitative assessment indicates that it is more likely than

not that the carrying

value of

goodwill exceeds

its fair

value, a

quantitative analysis

is made

to determine

the amount

of goodwill

impairment. Analyzing

goodwill

includes

consideration

various

factors

that

continue

rapidly

evolve

and

for

which

significant

uncertainty

remains,

including the

pace of

economic recovery

from the

ongoing impacts

of the

COVID-19 pandemic.

Further weakening

in the

economic

environment, such as decline in the performance

of the reporting units or other factors, could cause the

fair value of one or more of the

reporting

units

fall

below

their

carrying

value,

resulting

goodwill

impairment

charge.

Actual

values

may

differ

significantly

from this assessment. Such

differences could result

in future impairment of

goodwill that would,

in turn, negatively

impact our results

operations

and

the

reporting

unit

which

the

goodwill

relates.

During

the

fourth

quarter

2022,

management

performed

qualitative

analysis

the

carrying

amount

goodwill,

and

concluded

that

more-likely-than-not

that

the

fair

value

the

reporting units exceeded their carrying value. Therefore, no quantitative

analysis was required.

As of

December 31,

2022, the

book value

of our

goodwill was

$38.6 million,

which was

recorded at

FirstBank.

If an

impairment

determination

made

future

reporting

period,

our

earnings

and

book

value

goodwill

will

reduced

the

amount

the

impairment. If an

impairment loss is

recorded, it will

have little or

no impact on

the tangible book

value of our

common stock, or

our

regulatory capital

levels, but such

an impairment

loss could significantly

reduce FirstBank’s

earnings and

thereby restrict FirstBank’s

ability to make dividend payments to us without prior

regulatory approval, because Federal Reserve policy states

that the bank holding

company dividends should be paid from current earnings.

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

income by the Bank.

December

31,

2022,

the

Corporation

had

deferred

tax

asset

$155.6

million

(net

valuation

allowance

$185.5

million, including

a valuation

allowance of

$149.5 million

against the

deferred tax

assets of

FirstBank). Under

the 2011

PR Code,

amended, 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

net operating loss

(“NOL”), a

particular subsidiary

must

be able to

demonstrate sufficient

taxable income

within the applicable

NOL carry-forward

period. Pursuant

to the 2011

PR Code, the

carry-forward period

for NOLs

incurred during

taxable years

that commenced

after December

31, 2004

and ended

before January

2013

years;

for

NOLs

incurred

during

taxable

years

commencing

after

December

31,

2012,

the

carryover

period

years.

Accounting for

income taxes

requires that

companies assess

whether a

valuation allowance

should be

recorded against

their deferred

tax asset based

on an assessment

of the amount

of the deferred

tax asset that

is more

likely than

not to be

realized. Due to

significant

estimates

utilized

determining

the valuation

allowance

and

the potential

for

changes

in facts

and

circumstances

the future,

the

Corporation

may

not

able

reverse

the

remaining

valuation

allowance

may

need

increase

its

current

deferred

tax

asset

valuation allowance.

The Corporation’s

judgments regarding tax accounting

policies and the resolution of

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

required

determining

the

Corporation’s

effective

tax

rate

and

evaluating

its

tax

positions.

The

Corporation

provides

for

uncertain

tax

positions

when

such

tax

positions

not

meet

the

recognition

thresholds

measurement

criteria prescribed by applicable 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

the

jurisdictions

which

operate

may

challenge

our

tax

positions

and

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

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

income

effectively

connected

with

the

conduct

trade

business

those

regions.

The

USVI

jurisdiction

imposes

income

taxes

based

the

U.S.

Internal

Revenue

Code

under

the

“mirror

system”

established

the

Naval

Service

Appropriations Act of 1922. However,

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

if any.

These

tax

laws

are

complex

and

subject

different

interpretations.

must

make

judgments

and

interpretations

about

the

application

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. Section

1034.04(u) of the

2011 PR

Code

significantly

similar

Section

382.

However,

Act

60-2019

amended

the

Code

repeal

the

corporate

NOL

carryover

limitations upon change in control for taxable years beginning after December

31, 2018.

Upon the occurrence of a Section 382 ownership change, the use of

NOLs attributable to the period prior to the ownership change is

subject

limitations

and

only

portion

the

U.S.

and

USVI

NOLs,

applicable,

may

used

the

Corporation

offset

the

annual

U.S.

and

USVI

taxable

income,

any.

2017,

the

Corporation

completed

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

higher

U.S.

and

USVI

income

tax

liabilities

than

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,

result

either

sales

our

outstanding

issuances

new

that

could

separately

cumulatively

trigger

ownership

change

and,

consequently,

Section

382

limitation.

Any

further

Section

382

limitations

may

result

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.

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

reduce

our

Puerto

Rico

tax

liability

through

such

credit

deduction

will

depend

our

tax

profile

each

annual

taxable period, which is dependent on various factors.

RISKS RELATING TO

TECHNOLOGY AND CYBERSECURITY

must respond

to rapid

technological changes,

and these

changes may

be more

difficult or

expensive than

anticipated.

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.

most

financial

institutions,

FirstBank

significantly

depends

technology

deliver

its

products

and

other

services

and

otherwise conduct

business. To

remain technologically

competitive and

operationally efficient,

FirstBank invests

in system

upgrades,

new

technological

solutions,

and

other

technology

initiatives.

competitors

introduce

new

products

and

services

embodying

new

technologies,

or if

new industry

standards and

practices emerge,

our existing

product

and service

offerings,

technology and

systems

may become obsolete.

Furthermore, if we fail

to adopt or develop

new technologies or

to adapt our products

and services to emerging

industry standards,

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

enhance

and

improve

the

functionality

and

features

our

products,

services

and

technologies.

These

changes

may

more difficult or expensive to implement than we anticipate.

When

launch

new

product

service,

introduce

new

platform

for

the

delivery

distribution

products

services

(including mobile

connectivity and

cloud computing),

or make changes

to an existing

product or service,

we may not

fully appreciate

identify

new operational

risks that

may

arise

from those

changes,

we may

fail

implement

adequate

controls

to mitigate

the

risks

associated

with

those

changes.

Significant

failure

this regard

could

diminish

our ability

operate

our

business or

result

potential

liability

our

customers

and

third

parties,

increased

operating

expenses,

weaker

competitive

standing,

and

significant

reputational, legal

and regulatory

costs. Any

of the

foregoing consequences

could materially

and adversely

affect our

businesses and

results of operations.

Our

operational

security

systems

infrastructure,

those

third

parties,

could

fail

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.

The potential

for operational

risk exposure

exists throughout our

business and,

as a result

of our

interactions with, and

reliance on,

third

parties,

not

limited

our

own

internal

operational

functions.

Our

operational

and

security

systems

and

infrastructure,

including our computer systems,

data management, and internal

processes, as well as those

of third parties that

perform key aspects of

our

business

operations,

such

data

processing,

information

security,

recording

and

monitoring

transactions,

online

banking

interfaces and services,

internet connections, and

network access are

integral to our

performance. We

rely on our

employees and third

parties in

our day-to-day

and ongoing

operations,

who may,

because of

human error,

misconduct,

malfeasance,

failure, or

breach of

our or of third-party systems or infrastructure, expose us to risk.

Our ability to

implement backup systems

and other safeguards

with respect to

third-party systems is more

limited than with

respect

our

own

systems.

addition,

our

financial,

accounting,

data

processing,

backup,

other

operating

security

systems

and

infrastructure may fail to

operate properly or become

disabled, damaged, or otherwise

compromised as a result of

a number of factors,

including

events that

are wholly

or partially

beyond our

control.

may

need to

take our

systems offline

if they

become infected

with malware or a computer

virus or because of another form of

cyberattack. If backup systems are utilized,

they may not process data

as quickly as our primary

systems and some data might

not have been saved to backup

systems, potentially resulting in a

temporary or

permanent loss of such data.

frequently update

our systems

to support

our operations

and growth

and to

remain compliant

with applicable

laws, rules,

and

regulations. In

addition, we

review and

strengthen our

security systems

in response

to any

cyber incident.

Such strengthening

entails

significant

costs

and

risks

associated

with

implementing

new

systems

and

integrating

them

with

existing

ones,

including

potential

business interruptions and

the risk that this

strengthening may not

be entirely effective.

Implementation and testing

of controls related

our

computer

systems,

security

monitoring,

and

retaining

and

training

personnel

required

operate

our

systems

also

entail

significant costs.

Such operational

risk exposures

could adversely

impact our

operations, liquidity,

and financial

condition, as

well as

cause

reputational

harm.

addition,

may

not

have

adequate

insurance

coverage

compensate

for

losses

from

major

interruption.

Cyber-attacks,

system

risks

and

data

protection

breaches

could

adversely

affect

our

ability

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

highly

dependent

the

security,

controls

and

efficacy

our

infrastructure,

computer

and

data

management

systems,

well

those

our

customers,

suppliers,

and

other

third

parties.

access

our

network,

products

and

services,

our

employees,

customers, suppliers,

and other

third parties,

including downstream

service providers,

the financial

services industry

and

financial

data

aggregators,

with

whom

interact,

whom

rely

who

have

access

our

customers'

personal

account

information, increasingly

use personal mobile

devices or computing

devices that are

outside of our

network and control

environments

and

are

subject

their

own

cybersecurity

risks.

Our

business

relies

effective

access

management

and

the

secure

collection,

processing,

transmission,

storage and

retrieval

of confidential,

proprietary,

personal and

other

information

in our

computer

and data

management systems and networks, and in the computer and data management

systems and networks of third parties.

Information

security

risks

for

financial

institutions

have

significantly

increased

recent

years,

especially

given

the

increasing

sophistication and activities

of organized

computer criminals, hackers,

and terrorists and

our expansion of

online and digital

customer

services to

better

meet our

customer’s

needs.

These threats

may

derive

from fraud

or malice

on the

part of

our employees

or third-

party

providers

may

result

from

human

error

accidental

technological

failure.

These

threats

include

cyber-attacks,

such

computer viruses,

malicious or

destructive code,

phishing attacks,

denial of

service attacks, or

other security

breach tactics

that could

result

the

unauthorized

release,

gathering,

monitoring,

misuse,

loss,

destruction,

theft

confidential,

proprietary,

and

other

information, including

intellectual property,

of ours, our

employees, our customers,

or third parties,

damages to systems,

or otherwise

material

disruption

our

customers’

other

third

parties’

network

access

business

operations,

both

domestically

and

internationally.

While

maintain

Information

Security

Program

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

vendor management program

to oversee third party and

vendor risks, there is no

guarantee that we will not

exposed to or

be affected

by a cybersecurity

incident.

Cyber threats are

rapidly changing and

future attacks or

breaches could lead

other

security

breaches

the networks,

systems,

devices

that

our

customers

use

access our

integrated

products

and

services,

which,

turn,

could

result

unauthorized

disclosure,

release,

gathering,

monitoring,

misuse,

loss

destruction

confidential,

proprietary,

and

other

information

(including

account

data

information)

data

security

compromises.

cyber

threats

continue

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 full extent of a

particular cyberattack,

and the

steps that

the Corporation

may need

to take

to investigate

such attack,

may not

be immediately

clear,

and it

could take

considerable additional

time for us

to determine

the complete

scope of

information compromised,

at which time

the

impact

on the

Corporation

and measures

to recover

and restore

to a

business-as-usual

state may

be difficult

to assess.

These factors

may

also

inhibit

our

ability

provide

full

and

reliable

information

about

the

cyberattack

our

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

not

adequate

compensate

for

the

potential

costs

and

other

losses

arising

from

cyber-attacks,

failures of

information technology

systems, or

security breaches,

and such

insurance policies

may not

be available

to us in

the future

economically

reasonable

terms, or

all.

Insurers

may

also

deny

coverage

as to

any

future

claim.

Any of

these

results

could

harm our growth prospects, financial condition, business, and reputation.

The Corporation is subject

to stringent and changing

privacy laws, regulations,

and standards as well

as policies, contracts, and

other

obligations

data

privacy

and

security.

Our

failure

comply

with

privacy

laws and

regulations,

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

personal

information

and

other

data

apply

our

business.

State

laws

are

changing

rapidly,

and

new

legislation

proposed

enacted

number

other

states

imposes,

has

the

potential

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

also

focused

privacy

matters.

Any

failure

any

our

business

partners

comply

with

applicable

laws,

rules,

and

regulations

may

result

investigations

actions

against

governmental entities, private

claims and litigation, fines,

penalties or other liabilities.

Such events may increase

our expenses, expose

us to

liabilities, and

impair our reputation,

which could 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

have

violated

such

laws

and

obligations,

will

able

successfully

defend

against

such

claims,

will

not

subject

significant fines

and penalties

in the

event of

non-compliance. Additionally,

to the

extent multiple

state-level laws

are introduced

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.

RISK RELATING

TO THE REGULATION

OF OUR INDUSTRY

We are subject to certain regulatory

restrictions that may adversely affect our operations.

are subject

to supervision

and regulation

by the

Federal Reserve

Board and

the FDIC.

are a

bank holding

company and

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

engage

broader

range

“financial”

activities

than

those

permitted

bank

holding

companies

that

are

not

financial

holding

companies.

financial

holding

company

that

ceases

meet

certain

standards

subject

variety

restrictions,

depending

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,

may

become

subject

regulatory

enforcement

action

and

other

adverse

regulatory

actions

that

might

have

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

account).

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

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

oversight

the

Federal

Reserve

Board

and

the

FDIC.

Any

deficiencies

our

compensation

practices

may

incorporated

into

our

supervisory

ratings,

which

can

affect

our

ability

make

acquisitions

perform other actions. In addition,

the regulation of our compensation practices has and may continue to change

in the future.

Our

compensation

practices

are subject

oversight

the Federal

Reserve

Board

and

the FDIC.

As discussed

Item

this

Annual Report

on Form 10-K,

the Corporation

currently is 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

satisfy

these

restrictions

and

guidelines

could

expose

adverse

regulatory

criticism,

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

The scope and

content of the U.S.

financial regulators’ policies

on executive compensation

are continuing to develop

and are likely

to continue evolving in

the future. It cannot be

determined at this time whether

compliance with such policies

will adversely affect the

ability of the Corporation and its subsidiaries to hire, retain and motivate their key employees.

are

subject

regulatory

capital

adequacy

guidelines,

and,

fail

meet

these

guidelines,

our

business

and

financial

condition will be adversely affected.

are subject

to stringent

regulatory

capital requirements.

Although

the Corporation

and FirstBank

met general

well-capitalized

capital ratios

as of

December 31,

2022, 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,

cannot

assure

that

will

remain

such

levels.

fail

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

the

Federal

Reserve

Board

could

adversely

affect

our

business,

financial

condition

and

results of operations.

In addition

to being

affected

by general

economic conditions,

our earnings

and growth

are affected

by the

policies of

the Federal

Reserve Board. An important

function of the Federal

Reserve Board is to regulate

the money supply and

credit conditions. Among the

instruments

used

the

Federal

Reserve

Board

implement

these

objectives

are

open

market

operations

U.S.

government

securities,

adjustments

the

discount

rate

and

changes

reserve

requirements

for

bank

deposits.

These

instruments

are

used

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.

The monetary policies

and regulations of

the Federal Reserve Board,

which during 2022

included, but were not

limited to, multiple

increases in

the federal

funds rate

to reduce

inflation, have

had a

significant effect

on the

operating results

of commercial

banks and

are

expected

continue

the

future.

The

effects

such

policies

upon

our

business,

financial

condition

and

results

operations have been and may continue to be adverse.

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. The U.S. Department

of Justice and other

federal

agencies

are

responsible

for

enforcing

these

laws and

regulations.

A successful

regulatory

challenge

institution's performance

under the Community Reinvestment

Act, the Equal Credit

Opportunity Act, the Fair

Housing Act or any

of the other fair lending

laws

and regulations

could result in

a wide variety

of sanctions, including

damages and civil

money penalties, injunctive

relief, restrictions

on mergers and acquisitions

activity, restrictions

on expansion and restrictions on entering

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.

face

risk

noncompliance

and

enforcement

action

the

Bank

Secrecy

Act

and

other

anti-money

laundering

statutes and regulations.

The

Bank

Secrecy

Act,

the

USA

PATRIOT

Act,

and

other

laws

and

regulations

require

financial

institutions

institute

and

maintain

effective

anti-money

laundering

program

and

file

suspicious

activity

and

currency

transaction

reports

appropriate,

among

other

duties.

The

Financial

Crimes

Enforcement

Network

authorized

impose

significant

civil

money

penalties

for

violations

those

requirements

and

has

recently

engaged

coordinated

enforcement

efforts

with

the

individual

federal

banking

regulators, as well

as the U.S. Department

of Justice’s

Drug Enforcement Administration.

are also subject

to increased scrutiny

our compliance with

trade and economic sanctions

requirements and rules enforced

by OFAC.

If our policies, procedures

and systems

are deemed

deficient, we

would 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. Failure

to maintain and implement adequate

programs to combat money

laundering and terrorist financing

could

also have serious reputational consequences

for us. Any of these results

could have a material adverse

effect on our business, financial

condition and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2022, First BanCorp. has ownership in the following

three main buildings located in Puerto Rico:

Headquarters –

Located at

First Federal

Building, 1519

Ponce de

León Avenue,

San Juan,

Puerto Rico.

Approximately 51%

of this 16-story office building is owned by the Corporation.

Service Center – Located at

1130 Muñoz Rivera

Avenue,

Hato Rey, Puerto

Rico. This facility,

which is fully occupied by the

Corporation,

houses

over

1,000

employees

from

operations

and

accommodates

branch

operations,

mortgage

operations,

Collections and Loss Mitigation, data processing and administrative and certain

other offices.

Consumer Lending

Center –

Located at

876 Muñoz

Rivera Avenue,

Hato Rey,

Puerto Rico.

This three-story

facility is

fully

occupied

the

Corporation

and

accommodates

retail

branch,

Money

Express,

Auto

Financing

and

Leasing

and

FirstBank Insurance Agency office, among others.

The

Corporation

owns

16 retail

branches

and 6

office

centers,

other

facilities,

and/or

parking

lots. It

leases 89

branch

premises,

loan

and

office

centers

and

other

facilities.

certain

situations,

financial

services

such

mortgage

and

insurance

businesses

and

commercial banking

services are

in the

same building

or branch.

All of

these premises

are in

Puerto Rico,

Florida,

the USVI

and the

BVI.

Management

believes

that

the

Corporation’s

properties

are

well

maintained

and

are suitable

for

the

Corporation’s

business

presently conducted.

Item 3. Legal Proceedings

Reference

made

Note

29,

“Regulatory

Matters,

Commitments

and

Contingencies,”

the

audited

consolidated

financial

statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated

herein by reference.

Item 4. Mine Safety Disclosure.

Not applicable.

PART

Item 5. Market for Registrant’s Common Equity and Related

Stockholder Matters and Issuer Purchases of Equity Securities

INFORMATION ABOUT

MARKET AND HOLDERS

The Corporation’s

common stock

is traded

on the

New York

Stock Exchange

(“NYSE”) under

the symbol

FBP.

On February

21,

2023, there

were 320 holders

of record

of the Corporation’s

common stock,

not including

beneficial owners

whose shares are

held in

the name of brokers or other nominees.

As of

December 31,

2022 and

December 31,

2021, the

Corporation had

40,954,057

and 21,836,611

shares held

as treasury

stock,

respectively.

Refer to

“Stock Repurchases”

section for

more information

on common

stock repurchases

during the

fourth quarter

2022

held as treasury stock.

DIVIDENDS

Since November

2018, the

Corporation has

made quarterly

cash dividend

payments on

its shares

of common

stock. On

April 27,

2022, the Corporation announced that

it had increased the quarterly cash

dividend payment on common stock,

from $0.10 to $0.12 per

share,

commencing

the

second

quarter

2022.

addition,

February

2023

the

Corporation

announced

that

its

Board

Directors

had

declared

quarterly

cash

dividend

$0.14

per

common

share,

which

represents

increase

17%

$0.02

per

common

compared

its

most

recent

dividend

paid

December

2022.

The

dividend

payable

March

10,

2023

shareholders of

record at

the close

of business

on February

24, 2023.

The Corporation

intends to

continue to

pay quarterly

dividends

on common stock. However,

the Corporation’s common

stock dividends, including the declaration, timing and

amount, remain subject

consideration

and

approval

the

Corporation’s

Board

Directors

the

relevant

times.

Information

regarding

restrictions

dividends, is set forth in Item 1, “Business -Supervision and Regulation

–

Dividend Restrictions” and incorporated herein by reference.

The 2011

PR Code, as

amended, requires the

withholding of income

taxes from dividend

income sourced

within Puerto Rico

to be

received

any

individual,

resident

Puerto

Rico

not,

trusts

and

estates

and

non-resident

custodians,

partnerships,

and

corporations.

Residents of Puerto Rico

A special tax of 15% withheld at

source is imposed, in lieu of a regular

tax, on any eligible dividends paid to

individuals, trusts, and

estates.

Eligible

dividends

include

dividends

paid

domestic

Puerto

Rico

corporation.

However,

the

taxpayer

can

perform

election to be excluded from the 15% special tax and be taxed at regular

rates. Once this election is made it is irrevocable. The election

allows the

taxpayer to

include in

ordinary income

the eligible

dividends received

and take

a credit

for the

amount of

tax withheld

excess, if any.

Individuals that

are residents

of Puerto

Rico are

subject to

an alternative

minimum tax

(“AMT”) on

the AMT

Net Income

if their

regular

tax

liability

less

than

the

alternative

minimum

tax

liability.

The

AMT

applies

individual

taxpayers

whose

AMT

Net

taxable

income exceeds

$25,000.

The individual

AMT rate

ranges

from 1%

to 24%

depending

on the

AMT Net

Income. The

AMT

Net Income

includes various

categories

of tax-exempt

income and

income subject

to preferential

rates as

provided by

the PR

Code,

such as

dividends on

the Corporation’s

common stock

and long-term

capital gains

recognized on

the disposition

of the Corporation’s

common stock.

Nonresident U.S. Citizens

Dividends paid to a U.S. citizen who is not a resident of Puerto Rico will be subject

to a 15% income tax.

Nonresident U.S. citizens

have the right to partial or total exemptions under section 1062.08

of the 2011 PR Code.

Nonresident individuals that are

not US citizens

Dividends paid to any

individual who is not a

citizen of the United States and

who is not a resident

of Puerto Rico will generally

subject to a 15% Puerto Rico income tax which will be withheld at source.

Foreign Corporations and Partnerships

Corporations

and partnerships

not organized

under Puerto

Rico

laws that

have

not engaged

in a

trade

or business

in Puerto

Rico

during

the

taxable

year

which

the

dividend,

any,

paid

are

subject

the

10%

dividend

tax

withholding.

Corporations

partnerships not organized

under the laws of

Puerto Rico that have

engaged in a trade

or business in Puerto

Rico are not subject

to the

10% withholding, but they must declare any dividend as ordinary income on their

Puerto Rico income tax return.

STOCK REPURCHASES

Since

April

2021,

the

Corporation’s

Board

Directors

has

announced

two

repurchase

program

authorizations

for

repurchases

totaling

$650

million

the

Corporation’s

outstanding

stock.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with Rule

10b5-1 under

the Exchange

Act.

During 2022,

the Corporation

repurchased 3,409,697

shares of

its common

stock for

the

$50 million

remaining under

an authorization

to repurchase

covering up

to $300

million in

shares of

outstanding

stock approved

the Board of

Directors and publicly

announced by

the Corporation

on April 26,

2021, and 16,003,674

shares of its

common stock

for

$225.0 million under

the most recent authorized

$350 million stock repurchase

program publicly announced

on April 27, 2022.

As of

December

31,

2022,

the

Corporation

has

remaining

authorization

repurchase

approximately

$125

million

common

stock.

The

amount

and

timing

stock

repurchases

will

based

various

factors,

including

our

capital

requirements,

market

conditions

(including the trading price of our stock), and regulatory and legal considerations.

The following table provides information relating to the

Corporation’s purchases of

shares of its common stock in the fourth quarter

of 2022.

Approximate Dollar

Value of

Total

Number of

That May Yet

Shares Purchased

Purchased Under

Average

as Part of Publicly

These Plans or

Total

number of

Price

Announced Plans

Programs

Period

shares purchased

Paid

Or Programs

(In thousands)

(1)

October 1, 2022 to October 31, 2022

1,649,963

15.18

1,646,805

150,000

November 1, 2022 to November 30, 2022

150,000

December 1, 2022 to December 31, 2022

1,902,468

13.14

1,902,468

125,000

Total

3,552,431

(2)(3)

3,549,273

(1)

December 31,

2022,

the

Corporation

was

authorized to

purchase up

$350

million of

the

Corporation’s

common

stock under

the

program,

that

was

publicly

announced on

April

27,

2022,

which $225

million had

been

utilized.

The

remaining $125

million

the

table

represents the

remaining

amount

authorized under

the

stock repurchase

program as

December 31,

2022.

The program

does not

obligate the

Corporation to

acquire any

specific number

shares, does not

have an expiration

date and may

be modified, suspended, or

terminated at any

time at the

Corporation's discretion.

Under the stock

repurchase

program, shares may be repurchased through open market purchases, accelerated share repurchases and/or privately negotiated transactions, including under plans

complying with Rule 10b5-1 under the Exchange Act.

(2)

Includes 3,549,273 shares of common stock repurchased in

the open market at an average price of $14.09 for a

total purchase price of approximately $50 million.

(3)

Includes 3,158 shares of common stock acquired by

the Corporation to cover minimum tax withholding obligations upon the

vesting of equity-based awards. The

Corporation intends

to continue

to satisfy

statutory tax

withholding obligations

in connection

with the

vesting of

outstanding restricted

stock and

performance

units through the withholding of shares.

STOCK PERFORMANCE GRAPH

The

following

graph

shall

not

deemed

incorporated

reference

into

any

filing

under

the

Securities

Act

the

Exchange

Act,

except

the

extent

that First

BanCorp.

specifically

incorporates

this information

reference,

and

shall not

otherwise

deemed

filed with the SEC.

The

graph

below

compares

the

cumulative

total

stockholder

return

First

BanCorp.

during

the

measurement

period

with

the

cumulative

total return,

assuming reinvestment

of dividends,

of the

S&P 500

Index and

the S&P

Supercom

Banks Index

(the “Peer

Group”).

The Performance

Graph assumes

that $100

was invested

on December

31, 2017

in each

of First

BanCorp. common

stock,

the S&P 500 Index and

the Peer Group. The comparisons

in this table are set forth

in response to SEC disclosure requirements

and are

therefore not intended to forecast or be indicative of future performance

of First BanCorp.’s common

stock.

The cumulative total stockholder return was obtained

by dividing (i) the cumulative amount of dividends per share,

assuming dividend

reinvestment since

the measurement

point, December 31,

2017 plus (ii)

the change in

the per share

price since the

measurement date,

by the share price at the measurement date.

Item 6.

[Reserved]

Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations (“MD&A”)

The following MD&A

relates to the accompanying

audited consolidated financial

statements of First BanCorp.

(the “Corporation,”

“we,” “us,”

“our,”

or “First

BanCorp.”) and

should be

read in

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

America

(“GAAP”).

See

“Special

Items”

and

“Basis

Presentation”

below

for

information

about

why

non-GAAP

financial

measures are presented

and the reconciliation

of non-GAAP financial

measures to the

most comparable GAAP

financial measures for

which the reconciliation is not presented earlier.

The detailed financial discussion that follows focuses on

2022 results compared to 2021.

For a discussion of 2021 results compared

2020,

see

Item

Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

included

the

Corporation’s

Annual

Report

Form

10-K

for

the

year

ended

December

31,

2021,

filed

with

the

Securities

and

Exchange

Commission (“SEC”) on March 1, 2022.

this

discussion

and

analysis

our

financial

condition

and

results

operations,

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

the

safe

harbor

provisions

Section

27A

the

Securities

Act

1933, as amended

(the “Securities Act”),

and Section 21E

of the Securities Exchange

Act of 1934, as

amended (the “Exchange

Act”).

Forward-looking statements are not historical

facts or statements of current conditions,

but instead represent only our beliefs regar

ding

future events, many of

which, by their nature, are inherently

uncertain and outside our control.

By identifying these statements

for you

in this manner,

we are alerting you to

the possibility that our actual

results, financial condition, liquidity

and capital actions may

differ

materially from the anticipated results,

financial condition, liquidity and capital

actions in these forward-looking statements.

Important

factors that

could cause

our results,

financial condition,

liquidity and

capital actions

to differ

from those

in these

statements include,

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

DESCRIPTION OF BUSINESS

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

SIGNIFICANT EVENTS

Economy

The Corporation

remains cautiously optimistic

on economic conditions

in Puerto Rico,

its principal market.

Total

non-farm payroll

employment

rose

decade

high

927,100

December

2022,

year-over-year

increase.

Moreover,

the

most

recent

Economic Development

Bank for

Puerto Rico’s

Economic Activity

Index (“EDB-EAI”),

which is

highly correlated

to Puerto

Rico’s

real gross

national product

(“GNP”) in

both level

and annual

growth rates,

showed a

2.6% growth

for the

first nine

months of

2022.

Although

global

expectations

point

economic

slowdown

the

United

States,

the

Corporation

expects

growth

the

local

economy

sustained

the

large

amount

federal

disaster

relief

funds

that

are

pending

disbursed.

Over

$45

billion

remaining

obligated

disaster

recovery

funding

has

been

earmarked

support

broad

based

economic

development

and

rebuilding

initiatives.

Growth

economic

activity,

the

robustness

the

labor

market,

supply

chain

complications

and

geopolitical

matters,

have

contributed to rising

inflation. In response,

the Federal Reserve (the

“FED”) has raised interest

rates and has

been reducing the

size of

its balance

sheet. Furthermore,

the FED

signaled that

it would

continue to

implement these

policy actions

in order

to bring

inflation

down. The

timing and

impact of

inflation and

rising interest

rates on

our business

and related

financial results

will depend

on future

developments, which are highly uncertain and difficult

to predict.

delivered positive

results in

2022, driven

by continued

execution of

strategic initiatives

including loan

and lease

growth,

and

expanded

fee

income

while

maintaining

disciplined

expense

management.

Credit

continues

perform

well,

reflecting

lower

nonaccrual and adversely

classified loan balances,

as well as charge

-off rates that

are still lower

than pre-pandemic

levels. We

remain

vigilant to

changing global

economic conditions

and the

effect that

restrictive monetary

policies may

continue to

have on

the overall

inflationary

environment.

believe

that

the Corporation

is well

equipped

to manage

rising market

challenges

going into

the

cycle.

are

highly

encouraged

the

growth

prospects

our

main

market,

which

should

continue

benefit

from

rebuilding

activity over the next few years.

See

“Update

the

Puerto

Rico

Fiscal

Situation”

below

for

additional

information

the

economic

and

fiscal

crisis

that

Puerto

Rico has experienced for more than a decade.

Return of Capital to Shareholders

In 2022, the

Corporation returned

approximately $363

million, or 119%

of 2022 earnings,

to its shareholders

through $275

million

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

stock dividends.

For the year ended December

31, 2022, the Corporation repurchased

approximately 19.4 million shares of

common stock for a total

purchase

price

$275.0

million

under

previously

publicly-announced

stock

repurchase

programs.

this

total,

$225.0

million

common

stock,

representing

16.0

million

common

weighted-average

price

$14.06,

were

repurchased

under

the

$350

million

stock

repurchase

program

announced

April

27,

2022

(the

“2022

Repurchase

Plan”).

February

21,

2023,

the

Corporation

has

repurchased

approximately

18.1

million

common

stock

totaling

$254.9

million

through

open

market

purchases

under

the

2022

Repurchase

Plan.

With

the

additional

purchases,

the

Corporation

has

$95.1

million

remaining

for

repurchases under the 2022 Repurchase Plan.

On February

9, 2023,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.14

per common

share, which

represents an

increase of

$0.02 per

common share,

or a

17% increase,

compared to

its most

recent dividend

paid in

December 2022.

The dividend

is payable

on March

10,

2023 to

shareholders of

record

at the

close of

business on

February

24, 2023.

The increased

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

share.

LIBOR Transition

On January 1, 2022,

the publication of certain

U.S. Dollar (“USD”) LIBOR

settings ceased. The

publication of the most

commonly

used

overnight,

one-month,

three-month,

six-month

and

twelve-month

USD

LIBOR

will

cease

immediately

after

June

30,

2023,

except that

per the

UK Financial

Conduct Authority

(the “FCA”)

proposal, the

one-, three-,

and six-month

tenors will

continue to

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

30, 2024.

The Adjustable

Interest Rate

Act (the

“LIBOR Act”),

that was

enacted in

March 2022,

provides

a statutory

framework to

replace

USD LIBOR

for

contracts

governed

U.S.

law

that

not have

clear

and

practicable

provisions

for

replacing

USD LIBOR

after

June

30,

2023

(“tough

legacy

contracts”).

December

16,

2022,

the

FED

adopted

final

rule

C.F.R.

Part

253,

“Regulation

Implementing

the LIBOR

Act (Regulation

ZZ)” (the

“Final Rule”).

The Final

Rule identifies

replacement benchmark

rates based

the

Secured

Overnight

Financing

Rate (“SOFR”)

replace

the

aforementioned

USD LIBOR

settings

that

will

cease

after

June

30,

2023

contracts

subject

the

LIBOR

Act.

Under

the

final

rule,

tough

legacy

contracts

will

converted

operation

law

various forms of SOFR, along with a spread

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

the first London banking day after June

30, 2023).

The spread

adjustment was

designed to

compensate for

USD LIBOR

being higher

than SOFR in

two regards.

First, USD

LIBOR

unsecured

rate

while

SOFR

secured

rate.

Second,

USD

LIBOR

includes

term

premia.

addition,

the

final

rule

codifies

safe harbor

protections

for

selection or

use of

SOFR as

a replacement

benchmark

and

clarifies who

would be

considered

“determining person”

able to

elect a

replacement benchmark

when USD

LIBOR ceases

to be

published as

representative on

June 30,

2023.

As of

December 31,

2022, the

Corporation’s

risk exposure

to USD

LIBOR consisted

of the

following: (i)

$1.4 billion

of variable-

rate

commercial

and

construction

loans

(including

unused

commitments),

(ii)

$44.6

million

U.S.

agencies

debt

securities

and

private label mortgage-backed securities

(“MBS”) held as part

of the available-for-sale

debt securities portfolio, (iii)

$124.4 million of

Puerto

Rico

municipalities

bonds

held

part

the

held-to-maturity

debt

securities

portfolio,

and

(iv)

$183.8

million

junior

subordinated

debentures

reported

other

borrowings

the

accompanying

audited

consolidated

statements

financial

condition

included

Item

this

Form

10-K.

Most

these

contracts

contain

adequate

features

convert

alternative

interest

rate;

however,

December

31,

2022,

contracts

totaling

approximately

$338.6

million

not

contain

fallback

language

mainly

consisting of the aforementioned

Puerto Rico municipalities bonds held

as part of the held-to-maturity debt

securities portfolio and the

junior

subordinated

debentures.

The

Corporation

expects

the

provisions

the

LIBOR

Act

and

Regulation

for

the

transition of any residual exposure after June 30, 2023.

The Corporation

continues to

execute its

LIBOR transition

workplan. Effective

December 31,

2021, the

Corporation discontinued

originations

that

use

USD

LIBOR

reference

rate.

addition,

the

Corporation

continues

working

with

the

update

systems,

processes, documentation, and models, with additional updates expected

through 2023.

Legislative and Regulatory

A comprehensive discussion

of legislative and

regulatory matters affecting

us can be

found in Item

1: Business –

“Supervision and

Regulation” section of this Form 10-K.

OVERVIEW OF RESULTS

OF OPERATIONS

First

BanCorp.'s

results

operations

depend

primarily

its

net

interest

income,

which

the

difference

between

the

interest

income

earned

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

affected

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

interest-earning

assets,

and

interest-bearing

liabilities; and

(iii) the

repricing characteristics

of these

assets and

liabilities. The

Corporation's results

of operations

also depend

the provision

for credit

losses, non-interest

expenses (such

as personnel,

occupancy,

the deposit

insurance premium

and other

costs),

non-interest income (mainly

service charges and

fees on deposits, cards

and processing income,

and insurance income),

gains (losses)

on sales of investments, gains (losses) on mortgage banking activities, and

income taxes.

The

Corporation

had

net

income

$305.1

million,

$1.59

per

diluted

common

share,

for

the

year

ended

December

31,

2022,

compared

$281.0

million,

$1.31

per

diluted

common

share,

for

the

year

ended

December

31,

2021.

Other

relevant

selected

financial indicators for the periods presented is included below:

Year

Ended December 31,

2022

2021

2020

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.57

1.38

0.67

Return on Average

Total Equity

(3)

18.66

12.56

4.59

Efficiency Ratio

(4)

48.25

57.45

59.62

(1)

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

financial performance and whether it is using its assets

efficiently.

(2)

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

and is calculated by dividing net income by its average total

assets.

(3)

Measures the Corporation’s performance

based on its average stockholders’ equity and is calculated

by dividing net income by its average total stockholders’ equity.

(4)

Measures how much the Corporation incurred to generate a

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

by total revenue.

The key

drivers of

the Corporation’s

GAAP financial

results for

the year

ended December

31, 2022,

compared to

the year

ended

December 31, 2021, include the following:

●

Net interest income for

the year ended December

31, 2022 was $795.3

million, compared to $729.9

million for the year ended

December 31,

2021. The

increase in

interest income

primarily reflects

a 39

basis points

increase in

the net

interest margin

4.12%. The

increase in

the net interest

margin was

mainly driven

by a

higher interest

rate environment

driving an

increase in

yields on

variable-rate commercial

loans,

interest-bearing cash

balances maintained

at the

FED, and

MBS, partially

offset by

higher cost of funds.

See “Net Interest Income” below for additional information.

●

The

provision

for

credit

losses

loans,

finance

leases,

unfunded

loan

commitments

and

debt

securities

for

the

year

ended

December 31, 2022

was an expense

of $27.7 million,

compared to a

net benefit of

$65.7 million for

2021. The increase

in the

overall

provision

reflects

the

growth

the

loan

portfolio,

primarily

consumer

loans,

and

the

uncertainty

the

near-term

macroeconomic

outlook.

The benefit

reported

in 2021

reflected improvement

to reduced

uncertainties relating

to the

economic impacts of the COVID-19 pandemic, primarily reflected in

the commercial and residential mortgage loan portfolios.

Net

charge-offs

totaled

$34.2

million

for

the

year

ended

December

31,

2022,

0.31%

average

loans,

compared

net

charge-offs

of $55.1

million, or

0.48% of

average loans,

for the

year ended

December 31,

2021. Total

net charge-offs

for the

year ended

December 31,

2021 included

$23.1 million

in net

charge-offs

related to

a bulk

sale of

$52.5 million

of residential

mortgage nonaccrual

loans and related

servicing advance receivables.

Adjusted for those

net charge-offs,

total net charge

-offs

in 2021

on a

non-GAAP basis

were $32.0

million,

or 0.28%

of average

loans.

The increase

in adjusted

net charge

-offs

was

primarily

reflected in

consumer

loans, as

well as

lower commercial

loans loss

recoveries. See

“Provision

for Credit

Losses”

and “Risk Management” below for analyses of the ACL and non-performing assets and

related ratios.

●

The Corporation

recorded non-interest

income of

$123.1 million

for the

year ended

December 31,

2022, compared

to $121.2

million for

2021. The

$1.9 million

increase was

primarily driven

by higher

transactional fee

income from

card and

merchant

transactions,

higher

realization

purchased

income

tax

credits,

and

increase

service

charges

and

fees

deposit

accounts,

partially offset

by a

decrease in

revenues from

mortgage banking

activities, primarily

related to

a lower

volume of

sales. See “Non-Interest Income” below for additional information.

●

Non-interest expenses

for the year

ended December 31,

2022 were

$443.1 million, compared

to $489.0 million

in 2021. Non-

interest

expenses

for

2021

included

$26.4

million

merger

and

restructuring

costs

associated

with

the

acquisition

and

integration

of Banco

Santander

Puerto

Rico (“BSPR”)

and

$3.0

million of

COVID-19 pandemic

-related

expenses, primarily

additional

cleaning,

safety

materials,

and

security

measures.

Adjusted

for

the

above-mentioned

merger

and

restructuring

costs and

COVID-19

expenses,

non-GAAP basis,

total

non-interest

expenses

2022

decreased

by $16.5

million,

when

compared

adjusted

total

non-interest

expenses

2021,

mainly

driven

decrease

outsourcing

technology service fees, higher

gains on other real

estate owned (“OREO”) activities,

as well as reductions

in the amortization

of intangible

assets and

charges to

legal and

operational reserves.

The efficiency

ratio for

the year

ended December

31, 2022

was

48.25%,

compared

57.45%

for

2021.

See

“Non-Interest

Expenses”

and

“Special

Items”

below

for

additional

information.

●

For

the

year

ended

December

31,

2022,

the

Corporation

recorded

income

tax

expense

$142.5

million,

compared

$146.8 million

for 2021.

The variance

was primarily

related to

a lower

effective tax

rate as

a result

of a

higher proportion

exempt to

taxable income

when compared

to 2021,

partially offset

by higher

pre-tax income.

As of

December 31,

2022, the

Corporation’s

net deferred

tax asset

amounted to

$155.6 million

(net of

a valuation

allowance of

$185.5 million,

including a

valuation

allowance

$149.5

million

the

Corporation’s

banking

subsidiary,

FirstBank),

compared

net

deferred

tax

asset

$208.4

million

December

31,

2021.

See

“Income

Taxes”

below

and

Note

–

Income

Taxes,

the

audited

consolidated financial statements included in Item 8 of this Form 10-K

for additional information.

●

December

31,

2022,

total

assets

were

approximately

$18.6

billion,

down

$2.2

billion

from

December

31,

2021.

The

decrease includes

a $2.1 billion

decline in cash

and cash equivalents

mainly in

connection with customer

deposit withdrawals

and maturities,

as well

as capital

return to

stockholders. In

addition, there

was a $571.4

million decrease

in total

investments,

driven

net

unrealized

losses

available-for-sale

debt

securities

$718.6

million

recorded

during

the

year

attributed

changes

market

interest

rates.

These

variances

were

partially

offset

growth

$469.3

million

total

loans.

See

“Financial Condition and Operating Data Analysis” below for additional information.

●

As of

December

31,

2022,

total liabilities

were

$17.3

billion,

down

$1.4

billion

from

December

31,

2021.

The decline

was

mainly

driven

$1.6

billion

decrease

total

deposits,

partially

offset

$250.1

million

net

increase

borrowings,

primarily short-term

advances from

the FHLB and

repurchase agreements.

The decline

in total deposits

reflected the

effect of

customers’

allocation

cash

into

higher

yielding

alternatives

and

elevated

customer

spending,

well

the

reduction

transactional account balances of government deposits. See

“Risk Management – Liquidity Risk and Capital Adequacy” below

for additional information about the Corporation’s

funding sources and strategy.

●

The

Bank’s

primary

sources

funding

are

consumer

and

commercial

core

deposits.

December

31,

2022,

these

core

deposits

funded

71%

total

assets.

Other

sources

liquidity

include

non-core

deposits,

such

brokered

CDs

and

government

deposits as

well

as repurchase

agreements

and

FHLB

advances.

The

Bank

maintains

borrowing

capacity

the

FHLB

and

the

FED

Discount

Window.

Although

currently

not

use,

December

31,

2022,

the

Corporation

had

approximately

$1.3

billion

available

for

funding

under

the

FED’s

Discount

Window

and

$644.2

million

available

for

additional borrowing capacity on FHLB lines of credit based on collateral

pledged at these entities.

●

December

31,

2022,

the

Corporation’s

stockholders’

equity

was

$1.3

billion,

decrease

$776.2

million

from

December 31, 2021.

The decline was driven

by a $718.6

million decrease in

the fair value

of available-for-sale

debt securities

recorded as

part of

accumulated other

comprehensive loss

in the

consolidated statements

of financial

condition, as

a result

changes

market

interest

rates. The

decrease

total stockholders’

equity

also reflects

the

purchase

approximately

19.4

million

common

stock

for

total

purchase

price

approximately

$275.0

million

and

$88.2

million

dividends

declared to common

stock shareholders during

2022. These variances

were partially offset

by earnings generated during

2022.

The

Corporation’s

common

equity

tier

(“CET1”)

capital,

tier

capital,

total

capital,

and

leverage

ratios

were

16.53%,

16.53%, 19.21%,

and 10.70%,

respectively,

as of

December 31,

2022, compared

to CET1

capital, tier

1 capital,

total capital,

and leverage ratios

of 17.80%, 17.80%,

20.50%, and 10.14%, respectively,

as of December 31,

2021.

See “Risk Management

– Capital” below for additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments, but

excluding the

utilization activity

on outstanding

credit cards,

increased by

$42.9 million

to $4.9

billion for

the

year

ended

December 31,

2022,

compared

to $4.8

billion

for 2021.

The Corporation

originated

$283.6

million

of Small

Business

Administration

Paycheck

Protection

Program

(“SBA

PPP”)

loans

during

the

year

ended

December

31,

2021.

Excluding

SBA

PPP

loan

originations,

total

loan

originations

increased

$326.5

million

consisting

$231.5

million

increase

consumer

loan

originations

and

$249.7

million

increase

commercial

and

construction

loan

originations,

partially offset by a $154.7 million decrease in residential mortgage

loan originations.

●

Total

non-performing assets

were $129.2

million as

of December

31, 2022,

a decrease

of $28.9

million, from

December 31,

2021.

The

decrease

was

driven

by:

(i)

$12.8

million

decrease

nonaccrual

commercial

and

construction

loans,

mainly

$8.5

million

loans

restored

accrual

status

and

collections;

(ii)

$12.3

million

reduction

nonaccrual

residential mortgage loans,

mostly driven by collections

and foreclosures; and

(iii) a $8.1 million

decrease in OREO and

other

assets, mainly

associated with

sales of

OREO residential

properties in

the Puerto

Rico region.

These variances

were partially

offset

increase

$4.3

million

nonaccrual

consumer

loans.

See

“Risk

Management

–

Nonaccrual

Loans

and

Non-

Performing Assets” below for additional information.

●

Adversely classified commercial and

construction loans decreased by

$83.7 million to $93.6 million

as of December 31, 2022,

compared to

December 31,

2021. The

decrease was

mostly driven

by $31.8

million in

payoffs and

paydowns associated

with

six commercial and construction loans,

each in excess of $1 million,

the sale of a $23.9 million commercial

and industrial loan

participation

in the

Florida region,

and the

upgrades in

the credit

risk classification

of three

commercial

and industrial

loans

totaling

$12.3

million.

The

Corporation

monitors

its

loan

portfolio

identify

potential

at-risk

segments,

payment

performance,

the

need

for

permanent

modifications,

and

the

performance

different

sectors

the

economy

all

the

markets where the Corporation operates.

SPECIAL ITEMS

The financial

results for

the year

ended December

31, 2022

did not

include any

significant special

item that

management believes

not reflective

of core

operating performance,

is not

expected to

reoccur with

any regularity

or may

reoccur at

uncertain times

and in

uncertain

amounts

(the

“Special

Items”).

The

Corporation’s

financial

results

for

the

years

ended

December

31,

2021

and

2020

included the following Special Items:

Year

ended December 31, 2021

●

Merger and restructuring

costs of $26.4

million ($16.5 million

after-tax) in connection

with the BSPR acquisition

integration

process and

related restructuring

initiatives. Merger

and restructuring

costs included

approximately $6.5

million related

to a

Voluntary

Employee

Separation

Program

(the “VSP”)

as well

as involuntary

separation actions

implemented

the Puerto

Rico region. In addition, merger and restructuring

costs included costs related to system conversions, accelerated depreciation

charges

planned

closures

and

consolidation

branches

accordance

with

the

Corporation’s

integration

and

restructuring plan, and other integration related efforts.

●

Costs of

$3.0 million

($1.9 million

after-tax)

related to

the COVID-19

pandemic response

efforts,

primarily costs

related to

additional cleaning, safety materials, and security measures.

Year

ended December 31, 2020

●

Merger

and

restructuring

costs

$26.5

million

($16.6

million

after-tax)

connection

with

the

acquisition

BSPR

and

restructuring

initiatives.

Merger

and

restructuring

costs

primarily

included

consulting,

legal,

valuation,

and

other

professional

service

fees

associated

with

the

acquisition,

VSP

offered

eligible

employees,

retention

and

other

compensation bonuses, and expenses related to system conversions and

other integration-related efforts.

●

Gain on

sales of

U.S. agencies MBS

and U.S

Treasury

notes of

$13.2 million.

The gain

on tax-exempt

securities or

realized

at the tax-exempt international banking entity subsidiary level had no effect

on the income tax expense recorded in 2020.

●

Tax benefit of $8.0 million

related to the partial reversal of the deferred tax asset valuation allowance.

●

Costs of

$5.4 million

($3.4 million

after-tax)

related to

the COVID-19

pandemic response

efforts,

primarily costs

related to

additional cleaning, safety materials, and security measures.

●

Gain of

$0.1 million

realized on

the repurchase

of $0.4

million of

TRuPs.

The gain,

realized at

the holding

company level,

had no effect on the income tax expense in 2020.

●

Benefit

$6.2

million

($3.8

million

after-tax)

from

insurance

recoveries.

Insurance

recoveries

included

$5.0

million

benefit related

to the final

settlement of the

Corporation’s

business interruption

insurance claim related

to lost profits

caused

by Hurricanes Irma and Maria in 2017.

The

following

table

shows

the

net

income

reported

for

the

year

ended

December

31,

2022

and

reconciles

for

the

years

ended

December

31,

2021

and

2020,

the

reported

net

income

adjusted

net

income,

non-GAAP

financial

measure

that

excludes

the

Special Items identified above:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Net income, as reported (GAAP)

305,072

281,025

102,273

Adjustments:

Merger and restructuring costs

26,435

26,509

COVID-19 pandemic-related expenses

2,958

5,411

Gain on sales of investment securities

(13,198)

Partial reversal of deferred tax asset valuation allowance

(8,000)

Gain on early extinguishment of debt

(94)

Benefit from hurricane-related insurance recoveries

(6,153)

Income tax impact of adjustments

(1)

(11,023)

(9,663)

Adjusted net income (Non-GAAP)

305,072

299,395

97,085

(1)

See "Special Items" above for the individual tax impact related

to the above adjustments, which were based on the Puerto Rico

statutory tax rate of 37.5%, as applicable.

Adjusted non-interest

expenses –

The following

tables reconcile

for the years

ended December

31, 2021

and 2020

the non-interest

expenses to adjusted non-interest expenses, which is a non-GAAP financial

measure that excludes the relevant Special Items identified

above:

2021

Non-Interest Expenses

(GAAP)

Merger and

Restructuring Costs

COVID 19 Pandemic-

Related Expenses

Adjusted (Non-GAAP)

(In thousands)

Non-interest expenses

488,974

26,435

2,958

459,581

Employees' compensation and benefits

200,457

200,390

Occupancy and equipment

93,253

2,601

90,652

Business promotion

15,359

15,337

Professional service fees

59,956

Taxes, other than income taxes

22,151

261

21,890

FDIC deposit insurance

6,544

Net gain on OREO operations

(2,160)

Credit and debit card processing expenses

22,169

Communications

9,387

Merger and restructuring costs

26,435

Other non-interest expenses

35,423

35,416

2020

Non-Interest

Expenses (GAAP)

Merger and

Restructuring Costs

COVID 19 Pandemic-

Related Expenses

Hurricane-Related

Insurance Recoveries

Adjusted (Non-

GAAP)

(In thousands)

Non-interest expenses

424,240

26,509

5,411

(1,153)

393,473

Employees' compensation and benefits

177,073

1,772

175,301

Occupancy and equipment

74,633

2,713

(789)

72,709

Business promotion

12,145

581

(184)

11,748

Professional service fees

52,633

(180)

52,805

Taxes, other than income taxes

17,762

274

17,488

FDIC deposit insurance

6,488

Net loss on OREO operations

3,598

Credit and debit card processing expenses

19,144

Communications

8,437

8,421

Merger and restructuring costs

26,509

Other non-interest expenses

25,818

25,771

CRITICAL ACCOUNTING ESTIMATES

The

accounting

principles

the

Corporation

and

the

methods

applying

these

principles

conform

GAAP.

preparing

the

consolidated

financial

statements,

management

required

make

estimates,

assumptions,

and

judgments

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

expenses

during

the

reporting

periods.

Accounting

estimates

require

assumptions

and

judgments

about

uncertain

matters

that

could

have

material

effect

the

consolidated

financial

statements.

The

Corporation’s

critical

accounting

estimates

that

are

particularly

susceptible

significant

changes

include

the

following:

(i)

the

ACL;

(ii)

valuation

financial

instruments;

and

(iii)

income taxes. Actual results could differ from estimates and assumptions

if different outcomes or conditions prevail.

Allowance for Credit Losses

The Corporation

maintains an ACL

for loans

and finance

leases based upon

management’s

estimate of the

lifetime expected

credit

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

loans held for sale. Additionally,

the Corporation maintains an ACL

for

held-to-maturity

available-for-sale

debt

securities,

and

other

off-balance

sheet

credit

exposures

(

e.g.

, unfunded

loan

commitments). For loans and finance leases, unfunded loan commitments,

and held-to-maturity debt securities, the estimate of lifetime

credit losses

includes the

use of

quantitative models

that incorporate

forward-looking macroeconomic

scenarios that

are applied

over

the

contractual

lives

the

portfolios,

adjusted,

appropriate,

for

prepayments

and

permitted

extension

options

using

historical

experience.

For

purposes

the

ACL

for

lending

commitments,

such

allowance

determined

using

the

same

methodology

the

ACL

for

loans,

while

also

taking

into

consideration

the

probability

drawdowns

funding,

and

whether

such

commitments

are

cancellable by us. The

ACL for available-for-sale debt

securities is measured using a

risk-adjusted discounted cash flow

approach that

also

considers

relevant

current

and

forward-looking

economic

variables

and

the

ACL

limited

the

difference

between

the

fair

value of the security

and its amortized cost.

Judgment is specifically applied

in the determination of

economic assumptions, the length

the

initial

loss

forecast

period,

the

reversion

losses

beyond

the

initial

forecast

period,

historical

loss

expectations,

usage

macroeconomic

scenarios,

and

qualitative

factors,

which

may

not

adequately

captured

the

loss

model,

further

discussed

below.

The macroeconomic

scenarios utilized by

the Corporation include

variables that have

historically been key

drivers of increases and

decreases

credit

losses.

These

variables

include,

but

are

not

limited

to,

unemployment

rates,

housing

and

commercial

real

estate

prices, gross domestic

product levels, retail

sales, interest rate

forecasts, corporate

bond spreads, and

changes in equity

market prices.

The

Corporation

derives

the

economic

forecasts

uses

its

ACL

model

from

Moody's

Analytics.

The

latter

has

large

team

economists, database managers and operational engineers with a history

of producing monthly economic forecasts for over 25 years.

The

Corporation

has

currently

set

initial

forecast

period

(“reasonable

and

supportable

period”)

two

years

and

reversion

period of up to three

years, utilizing a straight-line

approach and reverting back

to the historical macroeconomic

mean for Puerto Rico

and the Virgin

Islands regions. For the

Florida region, the methodology

considers a reasonable and

supportable forecast period

and an

implicit reversion towards the historical

trend that varies for each macroeconomic

variable. After the reversion period,

a historical loss

forecast

period

covering

the

remaining

contractual

life,

adjusted

for

prepayments,

used

based

the

change

key

historical

economic variables

during representative

historical expansionary

and recessionary periods.

Changes in economic

forecasts impact the

probability

default

(“PD”),

loss-given

default

(“LGD”),

and

exposure

default

(“EAD”)

for

each

instrument,

and

therefore

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

does not expect to collect.

Further,

the

Corporation

periodically

considers

the

need

for

qualitative

adjustments

the

ACL.

Qualitative

adjustments

may

related to and include,

but not be limited to,

factors such as the

following: (i) management’s

assessment of economic forecasts

used in

the

model

and

how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization specific

risks such

as credit

concentrations, collateral

specific risks,

nature,

and size

of the portfolio

and external

factors

that may

ultimately impact

credit quality,

and (iii)

other limitations

associated with

factors such

as changes

in underwriting

and loan

resolution

strategies,

among

others.

The

qualitative

factors

applied

December

31,

2022,

and

the

importance

and

levels

the

qualitative

factors

applied,

may

change

future

periods

depending

the

level

changes

items

such

the

uncertainty

economic

conditions

and

management's

assessment

the

level

credit

risk

within

the loan

portfolio

result

such

changes,

compared

to the

amount of

ACL calculated

by the

model.

The evaluation

of qualitative

factors

is inherently

imprecise

and

requires

significant management judgment.

The ACL can also be

impacted by factors outside the Corporation’s

control, which include unanticipated

changes in asset quality of

the

portfolio,

such

as deterioration

borrower

delinquencies,

credit

scores

our

residential

real

estate

and

consumer

portfolio.

Further,

the current

fair

value of

collateral

is utilized

to assess

the

expected

credit losses

when

a financial

asset is

considered

to be

collateral dependent.

Our process

for determining

the ACL is

further discussed

in Note

1 –

Nature of

Business and

Summary of

Significant Accounting

Policies,

included

Item

this

Form

10-K.

Also,

see

“Allowance

for

Credit

Losses

for

Loans

and

Finance

Leases”

below

for

additional information on

the weighting of economic

scenarios to estimate the

ACL, changes in key

economic variables, and

the ACL

sensitivity analysis performed as of December 31, 2022.

Valuation

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

operations.

The

Corporation

holds

debt

and

equity

securities,

derivatives,

and

other

financial

instruments

fair

value.

The

Corporation’s

significant assets

reflected at

fair value

on a

recurring basis

on the

Corporation’s

financial statements

consisted

of available-for-sale

debt

securities

amounting

$5.6

billion

December

31,

2022.

addition,

fair

value

also

used

for

measuring

other

non-

recurring fair value assets such as collateral dependent loans, OREO, and loans

held for sale.

Assets

and

liabilities

carried

fair

value

inherently

include

subjectivity

and

may

require

the

use

significant

assumptions,

adjustments and

judgment including,

among others,

discount rates,

cash flows,

default rates,

and loss

rates.

A significant

change

assumptions

may

result

significant

change

fair

value,

which

turn,

may

result

higher

degree

financial

statement

volatility

and

could

result

significant

impact

our

results

operations,

financial

condition

disclosures

fair

value

information.

The

fair value

of a

financial

instrument

is the

amount

that would

be received

sell an

asset or

paid

to transfer

liability

orderly transaction

between market

participants at

the measurement

date. The

Corporation categorizes

the fair

value of

its available-

for-sale

debt

securities

using

three-level

hierarchy

for

fair

value

measurements

that

distinguishes

between

market

participant

assumptions

developed

based

market

data

obtained

from

sources

independent

the

Corporation

(observable

inputs)

and

the

Corporation’s

own

assumptions

about

market

participant

assumptions

developed

based

the

best

information

available

the

circumstances

(unobservable

inputs).

The

hierarchy

inputs

used

determining

the

fair

value

maximizes

the

use

observable

inputs and

minimizes the

use of

unobservable inputs

by requiring

that observable

inputs be

used when

available. The

hierarchy level

assigned

to each

security

in the

Corporation’s

investment portfolio

was based

on management’s

assessment of

the transparency

and

reliability of the inputs used to estimate the fair values at the measurement

date.

The fair value

of available-for-sale debt

securities was based

on unadjusted quoted

market prices (as

is the case with

U.S. Treasury

securities

and

equity

securities

with

readily

determinable

fair

values),

when

available

(Level

1).

quoted

market

prices

are

unavailable, the

fair value

is based on

market prices

for comparable

assets (as is

the case

with MBS

and U.S.

agency debt

securities)

that are

based on

observable market

parameters,

including benchmark

yields, reported

trades, quotes

from brokers

or dealers,

issuer

spreads,

bids,

offers,

and

reference

data,

including

market

research

operations,

when

available

(Level

2).

Observable

prices

the

market

already consider

the risk

of nonperformance.

If listed

prices or

quotes

are not

available, fair

value

is based

upon discounted

cash flow

models that

use unobservable

inputs due

to the

limited market

activity of

the instrument,

as is

the case

with private

label

MBS held

by the

Corporation (Level

3). Assets

are classified

in their

entirety based

on the

lowest level

of input

that is

significant to

their fair value measurement.

Private label MBS

are collateralized

by fixed-rate

mortgages on single-family

residential properties

in the U.S.

with original

FICO

scores

over

700

and

moderate

loan-to-value

ratios

(under

80%),

well

moderate

delinquency

levels.

The

interest

rate

the

securities

is variable,

tied to

3-month

LIBOR,

and

limited to

the weighted

-average

coupon of

the underlying

collateral.

The market

valuation represents

the estimated

net cash

flows over

the projected

life of

the pool

of underlying

assets applying

a discount

rate that

reflects market

observed floating

spreads over

LIBOR, with

a widening

spread based

on a nonrated

security.

The market

valuation is

derived

from

model

that

utilizes

relevant

assumptions

such

the

prepayment

rate,

default

rate,

and

loss

severity

loan

level

basis. The

Corporation modeled

the cash

flow from

the fixed-rate

mortgage collateral

using

a static

cash flow

analysis according

collateral attributes

of the

underlying mortgage

pool (

i.e.

, loan

term, current

balance, note

rate, rate

adjustment type,

rate adjustment

frequency,

rate

caps,

and

others)

combination

with

prepayment

forecasts

based

historical

portfolio

performance.

The

Corporation models the variable cash flow of the security using the 3-month

LIBOR forward curve.

Declines in fair

value that are

credit-related are

recorded on the

balance sheet

through an

ACL with a

corresponding adjustment

provision for credit losses and declines that are non-credit-related are

recognized through other comprehensive income (loss).

If the

Corporation intends

to sell a

debt security

in an

unrealized loss

position or

determines that

it is more

likely than

not that

the

Corporation will be

required to sell

a debt security

before it recovers

its amortized cost

basis, the debt

security is written

down to fair

value

through

earnings.

of December

31,

2022,

the

Corporation

did

not

intend

sell

any

debt

securities

unrealized

loss

position

and

not

likely

than

not

that

the

Corporation

will

required

sell any

debt

securities

before

recovery

their

amortized cost basis.

For

debt

securities

an unrealized

loss position

for

which the

Corporation

does not

intend

to sell

the debt

security

and

it is

not

more likely than

not that the

Corporation will be

required to sell

the debt security,

the Corporation determines

whether the loss

is due

credit-related

factors

non-credit-related

factors.

For

debt

securities

unrealized

loss

position

for

which

the

losses

are

determined to be

the result of both

credit-related and non-credit-related

factors, the credit loss

is determined as

the difference between

the present value of the cash flows expected to be collected, and the amortized

cost basis of the debt security.

Available-for-sale

debt securities

held by

the Corporation

at year-end

primarily consisted

of securities

issued by

U.S. government-

categories

(credit

risk,

operational

risk,

legal

and

regulatory

risk,

reputational

risk,

model

risk,

and

capital

risk).

carrying

out

its

oversight

responsibilities,

each

committee

member

entitled

rely

the

integrity

and

expertise

those

people

providing

information

the committee

and

the

accuracy

and

completeness

such

information,

absent

actual

knowledge

inaccuracy.

The

Chief

Executive

Officer

appoints

the

Executive

Risk Management

Committee

and members

the Corporation’s

senior

and

executive management have

the opportunity to

share their insights about

the types of risks

that could impede

the Corporation’s

ability

to achieve

its business

objectives. The

Chief Risk

Officer

of the

Corporation directs

the agenda

for

the meetings

and the

Enterprise

Risk Management

(“ERM”) and

Operational Risk

Director serves

as secretary

of the

committee and

maintains the

minutes on

behalf

of the committee. The General Auditor also participates in the committee as an observer.

The

committee

provides

assistance

and

support

the

Chief

Risk

Officer

promote

effective

risk

management

throughout

the

Corporation.

The

Chief

Risk

Officer

and

the

ERM

and

Operational

Risk

Director

report

the

Committee

matters

the

enterprise risk management framework of the Corporation, including, but not

limited to:

●

The risk governance structure;

●

The risk competencies of the Corporation;

●

The Corporation’s risk appetite statement

and risk tolerance; and

●

The risk management

strategy and associated risk

management initiatives and

how both support the

business strategy

and business model of the Corporation.

Other Management Committees

part

its

governance

framework,

the

Corporation

has

various

additional

risk

management

related-committees.

These

committees are

jointly responsible

for ensuring

adequate risk

measurement and

management in

their respective

areas of authority.

the management level, these committees include:

●

Management’s

Investment and

Asset Liability Committee

(the “MIALCO”)

– oversees interest

rate and market

risk, liquidity

management

and

other

matters,

including

sensitivity

the

Corporation’s

earnings

under

various

interest

rate

scenarios. This committee

makes recommendations as

to any adjustments to

asset liability management and

financial resource

allocation

light

current

events,

risks,

exposures,

and

regulatory

requirements

and

approves

policies.

Refer

“Liquidity Risk and Capital Adequacy”

and “Interest Rate Risk Management”

below for further details.

●

Information Technology

Steering Committee –

oversees and counsels

on matters related

to information

technology and cyber

security, including

the development of information management policies and procedures throughout

the Corporation.

●

Bank Secrecy Act Committee – oversees, monitors,

and reports on the Corporation’s compliance with

the Bank Secrecy Act.

●

Credit Committees (consisting

of a Credit

Management Committee and

a Delinquency Committee)

– oversees and

establishes

standards for credit

risk management processes

within the Corporation.

The Credit Management

Committee is responsible

for

the approval

of loans

above an

established size

threshold. The

Delinquency Committee

is responsible

for the

periodic review

of credit exceptions,

past-due loans, portfolio

concentrations, foreclosures,

collection, loan mitigation

programs, risk appetite,

leveraged loans, business production and the Bank’s

internal credit-risk rating classification;

●

Vendor

Management

Committee

–

oversees

policies,

procedures,

and

practices

the

Corporation’s

vendor

management

efforts.

The

Vendor

Management

Committee’s

primary

functions

involve

the

establishment

processes

and

procedures to enable the recognition, assessment, management,

and monitoring of vendor management risks.

●

ESG Committee

– primarily

responsible for

aligning ESG

priorities and

initiatives for

the year,

setting and

monitoring long-

term objectives

and goals,

and leading

the annual

reporting process

on ESG

category

generally

included

repossessed

boats

and

autos

acquired

settlement

loans.

Repossessed boats and autos are recorded at the lower of cost or estimated fair value.

Other Non-Performing Assets

This

category

consisted

of a

residential

pass-through

MBS

issued

the

PRHFA placed

non-performing

status

the

second

quarter of 2021 based on the delinquency status of the underlying second

mortgage loans.

Loans Past-Due 90 Days and Still Accruing

These are accruing loans

that are contractually delinquent

90 days or more. These

past-due loans are either

current as to interest but

delinquent as to the

payment of principal (i.e.,

well secured and in process

of collection) or are

insured or guaranteed under

applicable

FHA,

VA,

other

government-guaranteed

programs

for

residential

mortgage

loans.

Furthermore,

required

instructions

regulatory

reports,

loans

past

due

days

and

still

accruing

include

loans

previously

pooled

into

GNMA

securities

for

which

the

Corporation

has

the

option

but

not

the

obligation

repurchase

loans

that

meet

GNMA’s

specified

delinquency

criteria

(e.g.,

borrowers

fail

make

any

payment

for

three

consecutive

months).

For

accounting

purposes,

these

GNMA

loans

subject

the

repurchase

option

are required

reflected

the

financial statements

with

offsetting

liability.

addition,

loans past

due

days

and

still accruing

include

PCD loans,

as mentioned

above, and

credit cards

that continue

accruing

interest until

charged-off

180 days.

Troubled

debt

restructurings

(“TDRs”)

are

classified

either

accrual

nonaccrual

loans.

loan

nonaccrual

status

and

restructured

TDR

will

remain

nonaccrual

status

until

the

borrower

has

proven

the

ability

perform

under

the

modified

structure, generally

for a

minimum of

six months,

and there

is evidence

that such

payments can

and are

likely to

continue as

agreed.

The

Corporation

considers

performance

prior

the

restructuring,

significant

events

that

coincide

with

the

restructuring,

assessing whether the borrower can meet the new terms,

which may result in the loan being returned to

accrual status at the time of the

restructuring

after

shorter

performance

period.

the

borrower’s

ability

meet

the

revised

payment

schedule

is uncertain,

the

loan remains classified as a nonaccrual loan.

The following table presents non-performing assets as of the indicated dates:

December 31,

2022

2021

(Dollars in thousands)

Nonaccrual loans held for investment:

Residential mortgage

42,772

55,127

Commercial mortgage

22,319

25,337

Commercial and Industrial

7,830

17,135

Construction

2,208

2,664

Consumer and finance leases

14,806

10,454

Total nonaccrual loans held for investment

(1)

89,935

110,717

OREO

31,641

40,848

Other repossessed property

5,380

3,687

Other assets

(2)

2,202

2,850

Total non-performing assets

(1)

129,158

158,102

Past due loans 90 days and still accruing

(3) (4) (5)

80,517

115,448

Non-performing assets to total assets

0.69

0.76

Nonaccrual loans held for investment to total loans held for investment

0.78

1.00

ACL for loans and finance leases

260,464

269,030

ACL for loans and finance leases to total nonaccrual loans held

for investment

289.61

242.99

ACL for loans and finance leases to total nonaccrual loans held

for investment, excluding residential real estate loans

552.26

483.95

(1)

Nonaccrual loans

exclude $328.1

million and

$363.4 million

of TDR

loans that

were

in compliance

with the

modified terms

and in

accrual status

as of

December 31,

2022 and

2021,

respectively.

(2)

Residential pass-through MBS issued by the PRHFA

held as part of the available-for-sale debt securities

portfolio.

(3)

Includes

PCD

loans

previously

accounted

for under

ASC

Subtopic

310-30

for which

the

Corporation

made

the

accounting

policy

election

maintaining

pools

of loans

“units

account” both

at the

time of

adoption of

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 $12.0 million and $20.6 million as

of December 31, 2022 and 2021, respectively.

(4)

Includes FHA/VA

government-guaranteed residential mortgage as

loans past-due 90 days

and still accruing as opposed

to nonaccrual loans. The

Corporation continues accruing interest

these loans until they have

passed the 15 months

delinquency mark, taking into

consideration the FHA interest

curtailment process. These

balances include $28.2 million

and $46.6 million

of FHA government guaranteed residential mortgage loans that

were over 15 months delinquent as of December 31, 2022 and

2021, respectively.

(5)

Includes rebooked

loans, which

were previously

pooled into

GNMA securities,

amounting to

$10.3 million

and $7.2

million as

of December

31, 2022

and 2021,

respectively.

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.

Total

nonaccrual loans

were $89.9

million as

of December

31, 2022.

This represents

a net

decrease of

$20.8 million

from $110.7

million as

of December

31, 2021.

The net

decrease was

primarily related

to a

$12.8 million

reduction in

nonaccrual commercial

and

construction loans,

mostly driven by

$8.5 million in

loans returned to

accrual status and

$8.5 million in

collections, partially offset

inflows of $5.7

million. In addition,

nonaccrual residential mortgage

loans decreased

by $12.3 million

mainly related to

$15.4 million

of loans

restored to

accrual status,

$11.8

million in

collections, and

$3.9 million

in loans

transferred to

OREO during

2022, partially

offset

inflows

$20.3

million.

These

variances

were

partially

offset

$4.3

million

increase

nonaccrual

consumer

loans,

mostly related to the continued trend of growth in the auto loan and finance

leases portfolios.

The following table shows non-performing assets by geographic segment

as of the indicated dates:

December 31,

2022

2021

(In thousands)

Puerto Rico:

Nonaccrual loans held for investment:

Residential mortgage

28,857

39,256

Commercial mortgage

14,341

15,503

Commercial and Industrial

5,859

14,708

Construction

831

1,198

Consumer and finance leases

14,142

10,177

Total nonaccrual loans held for investment

64,030

80,842

OREO

28,135

36,750

Other repossessed property

5,275

3,456

Other assets

2,202

2,850

Total non-performing assets

99,642

123,898

Past due loans 90 days and still accruing

76,417

114,001

Virgin Islands:

Nonaccrual loans held for investment:

Residential mortgage

6,614

8,719

Commercial mortgage

7,978

9,834

Commercial and Industrial

1,179

1,476

Construction

1,377

1,466

Consumer

469

144

Total nonaccrual loans held for investment

17,617

21,639

OREO

3,475

3,450

Other repossessed property

187

Total non-performing assets

21,168

25,276

Past due loans 90 days and still accruing

4,100

1,265

United States:

Nonaccrual loans held for investment:

Residential mortgage

7,301

7,152

Commercial and Industrial

792

951

Consumer

195

133

Total nonaccrual loans held for investment

8,288

8,236

OREO

648

Other repossessed property

Total non-performing assets

8,348

8,928

Past due loans 90 days and still accruing

182

Nonaccrual commercial mortgage loans

decreased by $3.0 million to

$22.3 million as of December

31, 2022, from $25.3 million

of December 31,

2021. The decrease was

primarily associated to

collections and loans

restored to accrual status

during 2022, partially

offset

the

migration

nonaccrual

status

$2.9

million

commercial

mortgage

loan

the

health

care

industry

the

Puerto Rico region.

Nonaccrual commercial and industrial

loans decreased by $9.3 million to

$7.8 million as of December 31, 2022,

from $17.1 million

as of

December 31,

2021. The

decrease was

primarily

associated with

loans restored

to accrual

status during

2022, including

a $5.2

million

commercial

and

industrial

loan

the

Puerto

Rico

region,

and

collections,

including

the

repayment

$1.2

million

commercial and industrial

loan in the

Puerto Rico region.

This variance was

partially offset

by inflows, including

the inflow of

a $1.1

million commercial and industrial loan related to the entertainment industry

in the Puerto Rico region.

Nonaccrual

construction

loans

decreased

$0.5

million

$2.2

million

December

31,

2022,

from

$2.7

million

December 31, 2021.

The following tables present the activity of commercial and construction

nonaccrual loans held for investment for the indicated

periods:

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Year ended

December 31, 2022

Beginning balance

25,337

17,135

2,664

45,136

Plus:

Additions to nonaccrual

2,934

2,749

5,703

Less:

Loans returned to accrual status

(1,585)

(6,864)

(48)

(8,497)

Nonaccrual loans transferred to OREO

(549)

(273)

(130)

(952)

Nonaccrual loans charge-offs

(83)

(385)

(114)

(582)

Loan collections

(3,333)

(4,934)

(184)

(8,451)

Reclassification

(402)

402

Ending balance

22,319

7,830

2,208

32,357

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Year ended

December 31, 2021

Beginning balance

29,611

20,881

12,971

63,463

Plus:

Additions to nonaccrual

5,090

4,367

9,480

Less:

Loans returned to accrual status

(2,376)

(752)

(319)

(3,447)

Nonaccrual loans transferred to OREO

(1,011)

(1,441)

(252)

(2,704)

Nonaccrual loans charge-offs

(1,433)

(629)

(86)

(2,148)

Loan collections

(4,326)

(6,471)

(6,585)

(17,382)

Reclassification

(218)

1,180

962

Nonaccrual loans sold, net of charge-offs

(3,088)

Ending balance

25,337

17,135

2,664

45,136

100

Nonaccrual

residential

mortgage loans

decreased by

$12.3 million

to $42.8

million as

of December

31, 2022,

compared to

$55.1

million as of December 31,

2021. The decrease was primarily related

to loans restored to accrual status

of $15.4 million, $11.8

million

in collections,

including the

payoff of

an individual

loan of

approximately $1.3

million, foreclosures

of $3.9

million, and

charge-offs

of $1.6 million

during the year

ended in 2022,

partially offset

by inflows, including

the inflow of

an individual loan

of approximately

$1.4 million.

The following table presents the activity of residential nonaccrual loans held for investment

for the indicated periods:

Year

ended December 31,

2022

2021

(In thousands)

Beginning balance

55,127

125,367

Plus:

Additions to nonaccrual

20,320

33,543

Less:

Loans returned to accrual status

(15,362)

(15,918)

Nonaccrual loans transferred to OREO

(3,895)

(8,058)

Nonaccrual loans charge-offs

(1)

(1,594)

(26,735)

Loan collections

(11,824)

(20,595)

Reclassification

(962)

Nonaccrual loans sold

(31,515)

Ending balance

42,772

55,127

(1)

For the year ended December 31, 2021, includes net charge

-offs totaling $23.1 million associated with the

bulk sale of residential mortgage nonaccrual loans and related servicing advance

receivables.

The amount of

nonaccrual consumer loans,

including finance leases, increased

by $4.3 million to

$14.8 million as of

December 31,

2022,

compared

$10.5

million

as of

December

31,

2021.

The

increase

was

mainly

reflected

the

auto

loans

and

finance

leases

portfolio.

As of

December

31,

2022,

approximately

$15.3

million

of the

loans

placed

in nonaccrual

status,

mainly

commercial

loans, were

current, or had delinquencies

of less than 90

days in their interest payments,

including $7.8 million

of TDRs maintained in

nonaccrual

status

until

the

restructured

loans

meet

the

criteria

sustained

payment

performance

under

the

revised

terms

for

reinstatement

accrual

status and

there

is no

doubt

about

full

collectability.

Collections

these

loans

are

being

recorded

cash basis

through

earnings, or on a cost-recovery basis, as conditions warrant.

During

the

year

ended

December

31,

2022,

interest

income

approximately

$0.9

million

nonaccrual

loans

with

carrying value

of $24.1

million as

of December

31, 2022, mainly

nonaccrual commercial

and construction

loans, was applied

against

the related principal balances under the cost-recovery method.

101

Total loans in early

delinquency (

i.e.

, 30-89 days past due loans, as defined in regulatory reporting

instructions) amounted to $104.9

million as of December 31, 2022,

an increase of $14.6 million, compared

to $90.3 million as of December 31,

2021.

The variances by

major portfolio categories were as follows:

●

Consumer loans

in early delinquency

increased by $21.5

million to $70.9

million as of

December 31,

2022, mainly reflected

in auto loans.

●

Residential mortgage loans in early delinquency decreased by $6.0

million to $28.2 million as of December 31, 2022.

●

Commercial and construction loans in early delinquency decreased

by $0.9 million to $5.8 million as of December 31, 2022.

In addition,

the Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrowers’

financial

condition,

restructurings

loan

modifications

through

this

program,

well

other restructurings of

individual commercial, commercial

mortgage, construction, and

residential mortgage loans,

fit the definition

TDR.

restructuring

debt

constitutes

TDR

the

creditor,

for

economic

legal

reasons

the

debtor’s

financial

difficulties,

grants a

concession to

the debtor

that it

would not

otherwise consider.

Modifications involve

changes in

one or

more of

the

loan

terms

that

bring

defaulted

loan

current

and

provide

sustainable

affordability.

Changes

may

include,

among

others,

the

extension of the

maturity of the

loan and modifications

of the loan

rate. As of

December 31, 2022,

the Corporation’s

total TDR loans

held

for

investment

amounted

$366.7

million,

decrease

$48.0

million

from

$414.7

million

December

31,

2021.

The

decrease was mainly related to payoffs and paydowns of

residential mortgage and commercial and industrial loans.

See Note 4

- Loans Held

for Investment,

to the audited

consolidated financial

statements included

in Item 8

of this Form

10-K, for

additional information and statistics about the Corporation’s

TDR loans.

assist

borrowers

affected

the

passing

Hurricane

Fiona

through

Puerto

Rico

September

17,

2022,

the

Corporation

established

Natural

Disaster

Deferral

Extension

Program,

with

term

that

did

not

extend

beyond

December

31,

2022,

for

residents of Puerto

Rico that were

directly impacted

by the passing

of the hurricane.

This program provided

payment deferral

or term

extension

on a

one payment

basis, that

did not

exceed three

payments,

to retail

borrowers (

i.e.

, borrowers

with personal

loans, auto

loans, finance

leases, credit

cards and

residential mortgage

loans) that

contacted the

Corporation by

October 31,

2022, to

request the

payment extension.

Loans continued

to accrue

interest during

the deferral

or extension

period. For

credit cards,

borrowers who

were

30 days or

less past due

as of September

16, 2022 were

eligible for this

program. For residential

mortgage loans and

consumer loans,

borrowers

who

were

days

less

past

due

September

16,

2022

were

eligible

for

this

program.

For

both

consumer

and

residential mortgage

loans subject

to the

deferral programs,

each borrower

was required

to opt

in on

a monthly

basis to

the program

and

had

resume

making

their regularly

scheduled

loan

payments

the

end

the

deferral

period.

For

consumer

loans,

deferred

amounts extended the

maturity date by

the number of

deferred periods. For

residential mortgage loans,

deferred amounts were

moved

the

end

the

loan

term.

Borrowers

that

made

payment

during

any

given

month

were

not

eligible

for

the

program

during

that

month.

Furthermore,

for

customers

that

opted

into

the

program,

the

delinquency

status of

loans

subject

the

deferral

extension

program was frozen to the status that existed in the month prior to the relief granted.

Loans

subject

the

above-described

program

were

not

considered

TDRs

since

the

deferral

extension

was

considered

insignificant.

Borrowers

were

eligible

for

payment

deferral

extension

three

payments

only

cumulative

payment

extensions

granted

during

the

last

months

did

not

exceed

six

payments,

including

the

extensions

granted

through

this

program.

December

31,

2022,

the

Corporation

entered

into

deferral

extension

payment

agreements

consumer

and

residential

mortgage

loans totaling

$73.1 million

pursuant to

this program.

Customers who

were unable

to resume

making their

contractual loan

payments

upon

exiting

from

these

deferral

programs

may

require

further

assistance

and

may

receive

eligible

receive

modifications,

which could be considered TDRs.

102

The OREO portfolio,

which is part

of non-performing

assets, decreased by

$9.2 million to

$31.6 million

as of December

31, 2022,

compared

$40.8

million

December

31,

2021.

The

following

tables

show

the

composition

the

OREO

portfolio

December 31,

2022 and

2021, as

well as

the activity

of the

OREO portfolio

by geographic

area during

the year

ended December

31,

2022:

OREO Composition by Region

As of December 31,

2022

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

23,388

606

24,025

Commercial

3,042

2,810

5,852

Construction

1,705

1,764

28,135

3,475

31,641

As of December 31, 2021

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

28,396

489

648

29,533

Commercial

4,521

2,810

7,331

Construction

3,833

151

3,984

36,750

3,450

648

40,848

OREO Activity by Region

For the year ended December 31, 2022

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Beginning Balance

36,750

3,450

648

40,848

Additions

14,719

601

15,351

Sales

(20,727)

(590)

(648)

(21,965)

Write-downs and other adjustments

(2,607)

(2,593)

Ending Balance

28,135

3,475

31,641

103

Net Charge-offs and Total

Credit Losses

Net charge

-offs

totaled

$34.2 million

for

the year

ended December

31, 2022,

or 0.31%

of average

loans on

an annualized

basis,

compared to $55.1

million, or annualized

0.48% of average

loans for the

year ended December

31, 2021. The

bulk sale of nonaccrual

residential mortgage

loans added

$23.1

million in

net charge-off

for the

year ended

December 31,

2021. Excluding

the effect

of net

charge-offs

related to the bulk sale, total net charge-offs in 2021

were $32.0 million, or 0.28% of average loans.

Residential mortgage

loans net

charge-offs

for the

year ended

December 31,

2022 were

$3.3 million,

or an

annualized 0.12%

average residential loans, compared to $28.5 million,

or an annualized 0.87% of average residential mortgage

loans, for the year ended

December 31, 2021.

Excluding the effect

of net charge

-offs related

to the bulk

sale, residential mortgage

loans net charge-offs

for the

year

ended

December

31,

2021

were

$5.4

million,

0.17%

average

residential

mortgage

loans.

Approximately

$1.4

million

charge-offs

recorded

during

2022

resulted

from

valuations

collateral

dependent

residential

mortgage

loans,

compared

$5.7

million in

2021. Net

charge-offs

on residential

mortgage loans

also included

$2.6 million

during the

year ended

December 31,

2022

related to foreclosures recorded in 2022, compared to $2.8 million recorded

for the same period in 2021.

Commercial

mortgage

loans net

recoveries

for

the year

ended

December

31,

2022 were

$1.3

million,

an annualized

0.06%

average commercial mortgage

loans, compared to

net charge-offs

of $1.2 million, or

an annualized 0.06%

of related average

loans for

the

year

ended

December

31,

2021.

Commercial

mortgage

loans

net

recoveries

for

2022

included

recoveries

totaling

$1.2

million

associated with two commercial mortgage relationships.

Commercial and industrial loans net recoveries

for the year ended December 31, 2022 were $0.4

million, or an annualized 0.01% of

average commercial and industrial loans, compared to $4.9 million,

or an annualized 0.16% of related average loans for the year ended

December 31,

2021. The

lower net

recoveries for

2022

reflects both

the effect

of a

$1.7 million

charge-off

recognized in

connection

with

the

sale of

adversely classified

commercial

and

industrial

loan

participation

the

Florida

region

2022

and

the

effect

2021 of

a $5.2 million

loan loss recovery

recognized in

connection with the

paydown of a

nonaccrual commercial

and industrial loan

participation in the Puerto Rico region.

Construction

loans

net

recoveries

for

the

year

ended

December

31,

2022

were

$0.6

million,

annualized

0.49%

average

construction loans,

compared to

$0.1 million,

or an

annualized 0.04%

of related

average loans,

for the

same period

in 2021.

The net

recoveries for 2022 included a $0.5 million loan loss recovery

of a construction loan in the Puerto Rico region.

Net

charge-offs

consumer

loans

and

finance

leases

for

the

year

ended

December

31,

2022

were

$33.2

million,

1.07%

average

loans,

compared

$30.4

million,

1.11%

average

loans,

for 2021

The

increase

2022 was

primarily

reflected in the personal

loan portfolio, when compared

to the same period

in 2021. Notwithstanding,

the net charge-off

ratio for 2022

decreased due to a higher average balance of loans held-in-portfolio

that more than offset the increase in net charge-offs.

The following table presents net charge-offs (recoveries)

to average loans held-in-portfolio for the indicated periods:

Year Ended

December 31,

2022

2021

2020

Residential mortgage

(1)

0.12

0.87

0.30

Commercial mortgage

(0.06)

0.06

0.08

Commercial and Industrial

(0.01)

(0.16)

0.02

Construction

(0.49)

(0.04)

(0.06)

Consumer loans and finance leases

1.07

1.11

1.53

Total loans

(1)

0.31

0.48

(1)

For

the

year

ended

December

31,

2021,

includes

net

charge-offs

totaling

$23.1

million

associated

with

the

bulk

sale

residential

nonaccrual

loans

and

servicing

advance

receivables. Excluding net charge-offs

associated with the bulk sale,

residential mortgage and total net

charge-offs to related average

loans for the year ended 2021

was 0.17% and 0.28%,

respectively.

104

The following table presents net charge-offs (recoveries)

to average loans held in various portfolios by geographic segment for the

indicated periods:

Year Ended December

31,

2022

2021

2020

PUERTO RICO:

Residential mortgage

(1)

0.14

1.09

0.39

Commercial mortgage

(0.04)

0.08

0.26

Commercial and Industrial

(0.11)

(0.30)

Construction

(1.68)

(0.05)

(0.11)

Consumer and finance leases

1.07

1.10

1.51

Total loans

(1)

0.37

0.59

0.62

VIRGIN ISLANDS:

Residential mortgage

0.18

0.06

0.17

Commercial mortgage

(0.22)

(0.23)

(0.18)

Construction

(0.04)

Consumer and finance leases

1.23

1.16

0.65

Total loans

0.23

0.13

FLORIDA:

Residential mortgage

(0.03)

(0.01)

Commercial mortgage

(0.10)

(0.01)

(0.48)

Commercial and Industrial

0.17

0.10

0.04

Construction

(0.06)

(0.04)

(0.05)

Consumer and finance leases

0.30

2.15

4.35

Total loans

0.05

0.07

(1)

For

the

year

ended

December

31,

2021,

includes

net

charge-offs

totaling

$23.1

million

associated

with

the

bulk

sale

residential

nonaccrual

loans

and

servicing

advance

receivables. Excluding

net charge-offs

associated with

the bulk

sale, residential

mortgage and

total net

charge-offs to

related average

loans in

the Puerto

Rico region

for the

year ended

2021 was 0.21% and 0.34%, respectively.

105

The above ratios are not necessarily indicative of the results expected in

subsequent periods.

Total

net charge

-offs plus

gains on

OREO operations

for the

year ended

December 31,

2022

amounted to

$28.4 million,

or a

loss

rate of

0.25% of

average loans

and repossessed

assets, compared

to losses

of $53.0

million, or

a loss

rate of

0.46% on

an annualized

basis, for the year ended December 31, 2021.

The following table presents information about the OREO inventory

and credit losses for the indicated periods:

Year Ended December 31,

2022

2021

2020

(Dollars in thousands)

OREO

OREO balances, carrying value:

Residential

24,025

29,533

32,418

Commercial

5,852

7,331

44,356

Construction

1,764

3,984

6,286

Total

31,641

40,848

83,060

OREO activity (number of properties):

Beginning property inventory

418

513

697

Properties acquired

156

167

120

Properties disposed

(230)

(262)

(304)

Ending property inventory

344

418

513

Average holding period (in days)

Residential

606

700

626

Commercial

2,570

2,018

2,170

Construction

2,185

2,115

2,151

Total average holding period (in days)

1,057

1,075

1,566

OREO operations gain (loss):

Market adjustments and gains (losses) on sale:

Residential

7,742

4,166

(29)

Commercial

420

(1,182)

(886)

Construction

(418)

820

(484)

Total net gain (loss)

7,744

3,804

(1,399)

Other OREO operations expenses

(1,918)

(1,644)

(2,199)

Net Gain (Loss) on OREO operations

5,826

2,160

(3,598)

(CHARGE-OFFS) RECOVERIES

Residential charge-offs, net

(1)

(3,343)

(28,517)

(9,498)

Commercial recoveries (charge-offs), net

1,679

3,676

(1,836)

Construction recoveries, net

602

108

Consumer and finance leases charge-offs, net

(33,183)

(30,372)

(36,652)

Total charge-offs, net

(34,245)

(55,137)

(47,878)

TOTAL CREDIT LOSSES

(2)

(28,419)

(52,977)

(51,476)

LOSS RATIO PER CATEGORY

(3)

Residential

(0.15)

0.74

0.30

Commercial

(0.04)

(0.05)

0.06

Construction

(0.15)

(0.48)

0.21

Consumer

1.07

1.11

1.53

TOTAL CREDIT LOSS RATIO

(4)

0.25

0.46

0.51

(1)

For the year ended December 31, 2021, includes net charge

-offs totaling $23.1 million associated with the

bulk sale of residential nonaccrual loans and related servicing advance

receivables.

(2)

Equal to net gain (loss) on OREO operations plus charge

-offs, net.

(3)

Calculated as net charge-offs plus market adjustment

and gains (losses) on sale of OREO divided by average loans and

repossessed assets.

(4)

Calculated as net charge-offs plus net gain (loss)

on OREO operations divided by average loans and repossessed

assets.

106

Operational Risk

The

Corporation

faces

ongoing

and

emerging

risk

and

regulatory

pressure

the

activities

that

surround

the

delivery

banking

and

financial

products.

Coupled

with

external

influences,

such

market

conditions,

security

risks,

and

legal

risks,

the

potential for

operational and

reputational loss

has increased.

mitigate and

control operational

risk, the

Corporation has

developed,

and continues

to enhance, specific

internal controls,

policies and procedures

that are designed

to identify and

manage operational

risk

appropriate

levels

throughout

the

organization.

The

purpose

these

mechanisms

provide

reasonable

assurance

that

the

Corporation’s business operations

are functioning within the policies and limits established by management.

The

Corporation

classifies operational

risk

into

two

major

categories:

business-specific

and

corporate-wide

affecting

all business

lines.

For

business

specific

risks,

risk

assessment

group

works

with

the

various

business

units

ensure

consistency

policies,

processes

and

assessments.

With

respect

corporate-wide

risks,

such

information

security,

business

recovery,

and

legal

and

compliance, the

Corporation has specialized

groups, such

as the Legal

Department, Information

Security,

Corporate Compliance,

and

Operations. These groups

assist the lines of

business in the

development and implementation

of risk management

practices specific to

the needs of the business groups.

Legal and Compliance Risk

Legal and compliance risk includes

the risk of noncompliance with applicable

legal and regulatory requirements,

the risk of adverse

legal

judgments

against

the

Corporation,

and

the

risk

that

counterparty’s

performance

obligations

will

unenforceable.

The

Corporation

subject

extensive

regulation

the

different

jurisdictions

which

conducts

its

business,

and

this

regulatory

scrutiny has

been significantly

increasing over

the years.

The Corporation

has established,

and continues

to enhance,

procedures that

are designed

to ensure

compliance with

all applicable

statutory,

regulatory

and any

other legal

requirements.

The Corporation

has a

Compliance

Director

who

reports

the

Chief

Risk

Officer

and

responsible

for

the

oversight

regulatory

compliance

and

implementation

of an

enterprise-wide compliance

risk assessment

process.

The Compliance

division

has officer

roles in

each major

business area with direct reporting responsibilities to the Corporate Compliance

Group.

Concentration Risk

The Corporation conducts

its operations in

a geographically concentrated

area, as its main

market is Puerto

Rico. Of the total

gross

loan portfolio

held for investment

of $11.6

billion as of

December 31, 2022,

the Corporation had

credit risk of

approximately 79%

the Puerto Rico region, 18% in the United States region, and 3% in the Virgin

Islands region.

Update on the Puerto Rico Fiscal and Economic Situation

A significant

portion of

the Corporation’s

business activities

and credit

exposure is

concentrated in

the Commonwealth

of Puerto

Rico, which

has experienced

economic and

fiscal distress

over the

last decade.

Since declaring

bankruptcy and

benefitting from

the

enactment of the federal Puerto

Rico Oversight, Management and

Economic Stability Act (“PROMESA”) in

2016, the Government of

Puerto

Rico

has

made

progress

fiscal

matters

primarily

restructuring

large

portion

its

outstanding

public

debt

and

identifying funding sources for its unfunded pension system.

Economic Indicators

November

10,

2022,

the

Puerto

Rico

Planning

Board

(“PRPB”)

presented

the

Economic

Report

the

Governor,

which

provides

analysis

Puerto

Rico’s

economy

during

fiscal

year

2021

and

short-term

forecast

for

fiscal

years

2022

and

2023.

According to the

PRPB, Puerto Rico’s

real gross national

product (“GNP”) expanded

by 1.0% in fiscal

year 2021, significantly

above

the PRPB’s

original

baseline projection

of a

2.0%

contraction. According

to the

report, real

GNP growth

was primarily

driven by

sharp increase

in personal

consumption expenditures

reflecting the

relaxation of

COVID-related restrictions,

as well

as the

impact of

the

substantial

disaster

relief funding

deployed

over

the period.

lesser extent,

growth

fiscal

year

2021

was also

driven

by a

higher level of

investments in machinery,

equipment, and construction.

These favorable variances

were partially offset

by an increase

in imports,

a reduction

in exports, and

a negative

change in the

level of

inventories. According

to the PRPB’s

baseline projection

the

Puerto Rico

economy is

forecasted to

continue growing

for fiscal

years 2022

and 2023.

Among the

key assumptions

included in

this

forecast

is the

positive

impact

expected

from

the ongoing

disbursements

of disaster

recovery

funds

($2.8

billion

and $4.0

billion

fiscal years 2022 and

2023, respectively),

as well as the

stimulus from remaining pandemic

relief funds ($1.1 billion

and $632 million

fiscal

years

2022

and

2023,

respectively),

and

the

inclusion

Puerto

Rico

the

Earned

Income

Tax

Credit

and

the

Child

Tax

Credit.

There

are

other

indicators

that

gauge

economic

activity

and

are

published

with

greater

frequency,

for

example,

the

Economic

Development

Bank

for

Puerto

Rico’s

Economic

Activity

Index

(“EDB-EAI”).

Although

not

direct

measure

Puerto

Rico’s

real

GNP,

the

EDB-EAI

is correlated

Puerto

Rico’s

real

GNP.

For

December

2022,

preliminary

estimates

showed

that the

EDB-EAI

increased

1.6%

and

0.6%

month-over-month

and

year-over-year

basis,

respectively.

Similarly,

for

calendar

year

2022,

the

107

preliminary data

reflects that

the index

averaged 124.4

during the

year,

which would

represent a

1.8% increase

from the

comparable

figure in 2021.

Fiscal Plan

January

27,

2022,

the

PROMESA

oversight

board

certified

the

2022

Fiscal

Plan

for

Puerto

Rico.

Similar

fiscal

plans,

the

2022

Fiscal

Plan

incorporates

updated

information

the

macroeconomic

environment,

well

government

revenues,

expenditures,

structural

reform

efforts,

and

recent

increases

federal

funding.

importantly,

the

2022

Fiscal

Plan

reflects the

Commonwealth

Plan of

Adjustment confirmed

by the

U.S. District

Court for

the District

of Puerto

Rico. Relative

to the

fiscal

plan,

the

2022

Fiscal

Plan

incorporates

new

set

expenditure

projections

that

factor

the

now-established

debt

service

requirements

pursuant

the

Plan

Adjustment,

well

additional

investments

enabled

the

increased

resources

available

to the

government.

Accordingly,

the 2022

Fiscal Plan

projects

unrestricted

surplus

after debt

service to

average $1

billion

annually

between

fiscal

years

2022

and

2031.

The

2022

Fiscal

Plan

prioritizes

resource

allocations

across

three

major

themes:

(i)

investing in

the operational

capacity of

the government

to deliver

services with

Civil Service

Reform, (ii)

prioritizing obligations

current and future retirees, and (iii) creating a fiscally responsible post-bankruptcy

government.

The

2022

Fiscal

Plan

contains

updated

macroeconomic

forecast

that

reflects

the

adverse

impact

the

pandemic-induced

recession at

the end of

fiscal year

2020, followed

by a

forecasted rebound

and recovery

in fiscal years

2021 through

2023. Similar

the

fiscal

plan,

the

2022

Fiscal

Plan

incorporates

real

growth

series

that

was

adjusted

for

the

short-term

income

effects

resulting from

the extraordinary

unemployment insurance

and other pandemic

-related direct transfer

programs. Specifically,

the 2022

Fiscal Plan

estimates that

Puerto Rico’s

GNP will

grow by

5.2% in

fiscal year

2022, followed

by a

0.6% growth

in fiscal

year 2023.

Excluding

the

effect

household

income

from

the

unprecedented

pandemic-related

federal

government

stimulus,

the

2022

Fiscal

Plan estimates that real GNP growth would be 2.6% and 0.9% in fiscal years 2022

and 2023, respectively.

Over the

past few

years, Puerto

Rico has

benefited from

historical levels

of federal

support, creating

new opportunities

to address

high-priority needs.

The 2022

Fiscal Plan

projects that

approximately $84

billion of

disaster relief

funding in

total, from

federal and

private sources, will be

disbursed in the reconstruction

process over a period of

18 years (2018 to

2035). Moreover,

since the previous

fiscal plan

was certified

in 2021,

the Commonwealth’s

available resources

have significantly

increased principally

as a

result of

two

major

developments:

(i)

incremental

federal

funding

for

health

care

result

the

recent

guidance

issued

the

Centers

for

Medicare and Medicaid

Services, which increases

the federal funding

cap by over $2

billion per year,

and (ii) improved

local revenue

collections

result

better-than-expected

recovery,

increased

local

consumption

and

economic

activity

enabled

enhanced

income support

programs (e.g.,

incremental funding

of approximately

$460 million

for the

Nutrition Assistance

Program). The

2022

Fiscal Plan provides a

roadmap to take advantage

of this unique opportunity,

create an environment of

fiscal stability,

and develop the

conditions for long-term growth and economic development

while continuing to underline the need to implement structural reforms

maximize the positive impact of federal recovery funds.

Debt Restructuring

After more than

four years since

the Commonwealth

entered Title

III, on January

18, 2022, the

U.S. District Court

for the District

of Puerto

Rico (the

“Court”) issued

an order

to confirm

the Plan

of Adjustment

to restructure

approximately $35

billion of

debt and

other claims

against the

Commonwealth of

Puerto Rico,

the PBA,

and the

ERS; and

more than

$50 billion

of pension

liabilities. The

Plan of Adjustment became effective

on March 15, 2022, as the Government

of Puerto Rico completed the exchange

of more than $33

billion

existing

bonds

and

other

claims

into

approximately

billion

new

bonds.

result,

annual

debt

service

for

the

Commonwealth

anticipated

decrease

from

maximum

$3.9

billion

prior

the

restructuring

$1.15

billion

each

year.

addition,

the

Commonwealth

made

than

$10

billion

cash

payments

various

creditor

groups,

well

implemented

the

Pension Reserve

Trust

provisions created

in the

Plan of

Adjustment. The

Pension Reserve

Trust

is projected

to be

funded with

than

$10

billion

contributions

over

the

years,

including

$1.4

billion

that

were

contributed

September

30,

2022.

Confirmation

and

implementation

the

Plan

Adjustment

marks

major

milestone

the

overall

debt

restructuring

process

and

creates a foundation for Puerto Rico’s

recovery and economic growth.

On October 12, 2022,

the Court issued an order to

confirm the Puerto Rico Highway

and Transportation Authority’s

(“HTA”)

Plan

Adjustment

restructure

approximately

$6.4

billion

claims.

December

2022,

the

HTA

Plan

Adjustment

became

effective. The

transactions therein

significantly lessen

HTA’s

debt burden

by reducing

HTA’s

funded debt

by 75%,

from $6.4 billion

to $1.245

billion senior

and $359

million subordinate

HTA

toll road-supported

debt. The

substantial consummation

of the

HTA

Plan

of Adjustment

represents a

significant

achievement

in advancing

Puerto Rico’s

public

policy objective

to attain

fiscal responsibility

and to

access the

capital markets

and is

expected to

enable HTA

to make

the necessary

investments to

improve and

maintain Puerto

Rico’s roads and other transportation

infrastructure.

On February 9,

2023, the PROMESA

oversight board

filed an amended

proposed Plan of

Adjustment and Disclosure

Statement to

restructure the

debt of

the Puerto

Rico Electric

Power Authority

(“PREPA-POA”).

The PREPA

-POA proposes

to cut

PREPA’s

than $10 billion of debt and other

claims by almost half, to approximately

$5.68 billion. According to the PROMESA

oversight board,

108

the

restructured

debt

would

be paid

a hybrid

charge

(the “Legacy

Charge”)

consisting

flat

connection

fee

and

volumetric

charge based

on the amount

of PREPA

customers’ electricity

usage that would

be added to

the electricity bills.

The proposed

Legacy

Charge is

subject to

approval by

the Puerto

Rico Energy

Bureau, the

independent energy

regulator.

The Court

will hold

a hearing

consider approval of the Disclosure Statement on February 28, 2023.

Other Developments

On September

17, 2022,

Hurricane Fiona

made landfall

on the

southwestern part

of Puerto

Rico with

winds exceeding

100 miles

per

hour in

some

areas and

leaving historic

amounts

of rain,

causing

a complete

power outage

in Puerto

Rico,

which in

turn led

water service

interruptions for

over 778,000

residents in

the Island.

Following the

passage of

the hurricane,

President Biden

granted

the Governor’s

request for

a declaration of

a major disaster

for all 78

municipalities in

Puerto Rico, and

as a result,

all municipalities

have

access

FEMA’s

Public

Assistance

Programs

for

response

and

reconstruction

projects.

addition,

the

local government,

collaboration

with

the

PROMESA

oversight

board,

has

enacted

numerous

emergency

response

measures

provide

immediate

funding

and assistance

to municipalities

and

governmental

agencies.

As of

October

14, 2022,

99% of

both

Puerto Rico’s

water and

electric services had been restored.

Notable

progress

continues

made

part

the

ongoing

efforts

prioritizing

the

restoration,

improvement,

and

modernization

Puerto

Rico’s

infrastructure.

According

the

Central

Office

for

Recovery,

Reconstruction,

and

Resiliency

(“COR3”),

progress

evidenced

the

significant

increase

permanent

work

projects

that

have

already

started

executing

the

reconstruction

efforts

with FEMA

obligated

funding.

As of

September

30, 2022,

there were

a total

of 5,63

active permanent

work

projects

reported,

than

twice

the

comparable

amount

reported

December

31,

2021,

2,650

projects.

Furthermore,

October

2022,

COR3

announced

that

during

the

first

nine

months

2022,

the

Government

had

already

reached

its goal

for

the

entire

year

disbursing

approximately

billion

advances

and

reimbursements

for

projects

led

municipalities,

government

dependencies and non-profit

organizations, through FEMA’s

Public Assistance program.

Such progress has been mainly

driven by the

implementation

the

Working

Capital

Advance

(“WCA”)

program

during

June

2022.

The

WCA

program,

which

was

originally

made available to municipalities and more recently extended

to PREPA,

PRASA and other government agencies, advances 25% of

the

total

cost

obligated

projects

that

have

not

commenced

due

lack

funding.

According

COR3,

the

extension

the

WCA

program to these additional entities is expected to accelerate the pace of disbursements

going forward.

January

25,

2023,

the

Government

Puerto

Rico

announced

that

the

Puerto

Rico

Public-Private

Partnerships

Authority

(“P3A”) selected

Genera PR

LLC (“Genera”)

to operate

and maintain PREPA’s

legacy power

plants pursuant

to a 10-year

Operation

and Maintenance

Agreement. Genera

was selected

by the

P3A after

a competitive

process that

began in

2020. Under

the agreement,

Genera will

operate, maintain,

decommission, and

modernize the

PREPA-owned

thermal power

generation system

of approximately

3,600 MW

after a

mobilization period.

In this

role, Genera

will manage

the operating

budget, fuel

contracts and

federal funds

for the

generation fleet

on behalf

of PREPA.

Key features

of Genera’s

proposal selected

by the

P3A include

(i) significant

cost-savings for

the benefit

of Puerto

Rico’s

ratepayers through

fuel management

and streamlined

operations, (ii)

improved reliability

and efficiency

across

the

generation

system

with

focus

distributed

power

and

microgrids,

(iii)

retirement

antiquated

power

plants

while

ensuring there is reliable,

low-cost and cleaner generation

in load centers to support

the transition to renewables,

and (iv) commitment

to local

hiring

and

plans to

recruit, train

and

incentivize

employees.

Headquartered

in San

Juan,

PR, Genera

is a

power

and

energy

service provider, and an independently

managed subsidiary of New Fortress Energy (NASDAQ: NFE).

On January 26, 2023, FEMA announced that it had recently approved

approximately $422 million to restore and renovate 37 multi-

family

residential

properties

belonging

the

Public

Housing

Administration

due

damaged

caused

Hurricane

María.

These

works

will

benefit

over

5,400

families

throughout

the

island.

According

FEMA,

the

funds

include

nearly

$165.3

million

for

measures that seek to strengthen the facilities, thus mitigating future damage from

other disasters.

The PROMESA

oversight board,

in collaboration

with the

Government of

Puerto Rico,

is currently

in the

process of

developing,

submitting, and

certifying the 2023

Fiscal Plan for

the Commonwealth of

Puerto Rico (the

“2023 Fiscal Plan”).

On January 25,

2023,

the PROMESA

oversight board

sent a

letter to

the Governor

of Puerto

Rico outlining

a revised

schedule in

order to

allow additional

time

for

the

integration

recent

information

regarding

Puerto

Rico’s

macroeconomic

environment,

federal

funding,

and

Government revenues and expenditures

that will underpin the Fiscal Year

2024 development process

in the spring of 2023.

According

to the

letter,

the PROMESA

oversight board

expects to

certify the

2023 Fiscal

Plan on

or before

March 16,

2023. In

a separate

letter

sent to the Governor on February 16,

2023, the PROMESA oversight board mentioned

that the fact that this will be the first

fiscal plan

to be certified in a

fully post-restructuring environment presents

a unique opportunity to focus

the 2023 Fiscal Plan on

three pillars: (i)

entrenching

legacy

strong

fiscal

management

prevent

recurrence

past

challenges

and

secure

stable

base

for

future

prosperity,

(ii) establishing

conditions for

economic prosperity

to improve

the livelihood

of Puerto

Rico’s

citizens and

bolster public

finances to facilitate

key government programs,

(ii) instilling a culture

of public-sector excellence

through targeted actions

focused on

enhancing the foundation for high performance in the public sector.

109

Exposure to Puerto Rico Government

As of December

31, 2022, the

Corporation had $338.9

million of direct

exposure to the

Puerto Rico government,

its municipalities

and

public

corporations,

compared

$360.1

million

December

31,

2021.

December

31,

2022,

approximately

$183.4

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,

most

cases,

the

good

faith,

credit

and

unlimited

taxing

power

the

applicable

municipality

have

been

pledged

their

repayment,

and

$114.0

million

loans

and

obligations

which

are

supported

one

specific

sources

municipal

revenues.

Approximately

72%

the

Corporation’s

exposure

Puerto

Rico

municipalities

consisted

primarily

senior

priority loans

and obligations concentrated

in four of

the largest municipalities

in Puerto Rico.

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. Furthermore, municipalities are also likely to be affected

by the negative economic and other effects

resulting from the COVID-

pandemic,

well

expense,

revenue,

cash

management

measures

taken

address

the

Puerto

Rico

government’s

fiscal

problems

and measures

included

in fiscal

plans

of other

government

entities. In

addition

to municipalities,

the

total direct

exposure

also

included

$10.8

million

loans

affiliate

PREPA,

$27.4

million

loans

agency

the

Puerto

Rico

central

government, and

obligations of the

Puerto Rico government,

specifically a residential

pass-through MBS

issued by the

PRHFA, at

amortized cost

of $3.3

million as

part of

its available-for-sale

debt securities

portfolio (fair

value of

$2.2 million

as of

December 31,

2022).

The

following

table

details

the

Corporation’s

total

direct

exposure

Puerto

Rico

government

obligations

according

their

maturities:

As of December 31,

2022

Investment

Portfolio

Total

(Amortized cost)

Loans

Exposure

(In thousands)

Puerto Rico Housing Finance Authority:

After 10 years

3,331

Total

Puerto Rico Housing Finance Authority

3,331

Puerto Rico public corporation:

After 5 to 10 years

27,354

Total Puerto Rico public

corporation

27,354

Affiliate of the Puerto Rico Electric Power Authority:

Due within one year

10,849

Total Puerto Rico government

affiliate

10,849

Total

Puerto Rico public corporation and government affiliate

38,203

Municipalities:

Due within one year

1,202

19,093

20,295

After 1 to 5 years

42,530

55,901

98,431

After 5 to 10 years

55,956

56,652

112,608

After 10 years

66,022

Total

Municipalities

165,710

131,646

297,356

Total

Direct Government Exposure

169,041

169,849

338,890

110

addition,

December

31,

2022,

the

Corporation

had

$84.7

million

exposure

residential

mortgage

loans

that

are

guaranteed by

the PRHFA,

a governmental instrumentality

that has been

designated as a

covered entity under

PROMESA (December

31,

2021

–

$92.8

million).

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties

and

the

guarantees serve

to cover shortfalls

in collateral in

the event of

a borrower default.

The Puerto Rico

government guarantees up

to $75

million

the

principal

for

all

loans

under

the

mortgage

loan

insurance

program.

According

the

most

recently

released

audited

financial

statements

the

PRHFA,

June

30,

2021,

the

PRHFA’s

mortgage

loans

insurance

program

covered

loans

aggregate

amount

approximately

$473

million.

The

regulations

adopted

the

PRHFA

require

the

establishment

adequate

reserves to

guarantee

the solvency

of the

mortgage loans

insurance program.

As of

June 30,

2021, the

most recent

date as

of which

information is available, the PRHFA

had a liability of approximately $5 million as an estimate of the

losses inherent in the portfolio.

As of December

31, 2022, the

Corporation had

$2.3 billion of

public sector deposits

in Puerto Rico,

compared to $2.7

billion as of

December

31,

2021.

Approximately

24%

the

public

sector

deposits

December

31,

2022

was

from

municipalities

and

municipal agencies

in Puerto

Rico and

76% was

from the

public corporation,

the Puerto

Rico central

government

and agencies,

and

U.S. federal government agencies in Puerto Rico.

Exposure to USVI Government

The Corporation has operations in the USVI and has credit exposure

to USVI government entities.

For

many

years,

the

USVI

has

been

experiencing

number

fiscal

and

economic

challenges

that

have

deteriorated

the

overall

financial

and

economic

conditions

the

area.

March

2022,

the

United

States

Bureau

Economic

Analysis

(the

“BEA”)

released

its

estimates

gross

domestic

product

(“GDP”)

for

2020.

According

the

BEA,

the

USVI’s

real

GDP

decreased

2.2%.

Also, the

BEA revised

its previously

published

real GDP

growth estimate

for

2019 from

2.2%

to 2.8%.

According

to the

BEA, the

decline in real

GDP for 2020

reflected decreases

in exports

of services, private

fixed investment,

personal consumption

expenditures,

and

government

spending

primarily

as a

result

of the

effects

the COVID-19

pandemic.

These decreases

were partly

offset

by an

increase

private

inventory investment,

reflecting

an increase

crude

oil

and

other

petroleum

products

imported

and

store

the

islands. In

addition, there

were reductions

in imports

of goods

including

consumer goods

and

equipment, and

in import

of services.

According

to the

BEA, expenditures

funded by

the various

federal grants

and transfer

payments are

reflected in

the GDP

estimates;

however,

the full

effects

of the

pandemic

cannot be

quantified in

the GDP

statistics for

the USVI

because the

impacts are

generally

embedded in source data and cannot be separately identified.

Nonetheless,

over

the

past

two

years,

the

USVI

has

been

recovering

from

the

adverse

impact

caused

COVID-19

and

has

continued to make progress

on its rebuilding efforts

related to Hurricanes Irma

and Maria in 2017.

According to data published

by the

government,

over

$1.4

billion

disaster

recovery

funds

were

disbursed

during

2021

and

2022,

up 22%

from

the

preceding

2-year

period. On the fiscal front, revenues have trended positively

and the USVI Government successfully completed the

restructuring

of the

government employee

retirement system. Although

no official

GDP data has

been released

for 2021

and/or 2022, the

aforementioned

developments,

well

the

positive

trend

reflected

key

economic

indicators

such

visitor

arrivals,

non-farm

payrolls

and

unemployment rate potentially indicate that the territory has experienced

an overall economic recovery since 2020.

PROMESA

does

not

apply

to the

USVI

and,

as such,

there

is currently

no federal

legislation

permitting

the restructuring

the

debts of

the USVI

and

its public

corporations

and instrumentalities.

the extent

that the

fiscal condition

of the

USVI government

continues to

deteriorate, the

U.S. Congress

or the government

of the

USVI may enact

legislation allowing

for the restructuring

of the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of December 31, 2022,

the Corporation had $38.0 million

in loans to USVI public corporations,

compared to $39.2 million as of

December 31, 2021. As of December 31, 2022, all loans were currently performing

and up to date on principal and interest payments.

111

BASIS OF PRESENTATION

The Corporation

has included

in this

Form 10-K

the following

financial measures

that are

not recognized

under GAAP,

which are

referred to as non-GAAP financial measures:

Net

interest

income,

interest

rate

spread,

and

net

interest

margin

excluding

the

changes

the

fair

value

derivative

instruments

and

tax-equivalent

basis

are

reported

order

provide

investors

additional

information

about

the

Corporation’s

net

interest

income

that

management

uses

and

believes

should

facilitate comparability and

analysis

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

interest-earning

assets,

respectively.

The

tax-equivalent

adjustment

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

statutory

rates.

Management

believes

that

standard

practice

the

banking

industry

present net

interest income,

interest rate spread,

and net

interest margin

on a fully

tax-equivalent basis.

This adjustment

puts

all earning assets, most notably

tax-exempt securities and tax-exempt

loans, on a common basis that

facilitates comparison of

results to

the results

of peers.

See “Results

of Operati

ons -

Net Interest

Income”

above for

the table

that reconciles

the net

interest

income

calculated

and

presented

accordance

with

GAAP

with

the

non-GAAP

financial

measure

“net

interest

income

tax-equivalent

basis

and

excluding

valuations.”

The

table

also

reconciles

net

interest

spread

and

margin

calculated and

presented in

accordance with

GAAP with

the non-GAAP

financial measures

“net interest

spread and

margin

on a tax-equivalent basis and excluding valuations.”

The

tangible

common

equity

ratio

and

tangible

book

value

per

common

are

non-GAAP

financial

measures

that

management believes

are generally

used by

the financial

community to

evaluate capital

adequacy.

Tangible

common equity

is total

common equity

less goodwill

and other

intangibles. Similarly,

tangible assets

are total

assets less

goodwill and

other

intangibles. Management and many stock analysts use the

tangible common equity ratio and tangible

book value per common

share in conjunction

with more traditional

bank capital ratios

to compare

the capital adequacy

of banking organizations

with

significant

amounts

goodwill

other

intangible

assets,

typically

stemming

from

the

use

the

purchase

method

accounting for

mergers

and acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures

may be useful to investors. Neither tangible

common equity nor tangible assets, or the related

measures, should be considered

in isolation or as a substitute for stockholders’ equity,

total assets, or any other measure calculated in accordance

with GAAP.

Moreover,

the manner in

which the Corporation

calculates its tangible

common equity,

tangible assets, and

any other related

measures may differ

from that of other

companies reporting measures

with similar names. See

“Risk Management –

Capital”

above for a reconciliation of the Corporation’s

tangible common equity and tangible assets.

supplement

the

Corporation’s

financial

statements

presented

accordance

with

GAAP,

the

Corporation

uses,

and

believes that investors would benefit

from disclosure of, non-GAAP financial measures

that reflect adjustments to net income

and non

-interest expenses

to exclude

items that

management

identifies as

Special Items

because management

believes they

are not

reflective of

core operating

performance, are

not expected

to reoccur with

any regularity or

may reoccur

at uncertain

times and in

uncertain amounts.

See “Special Items”

above for non-GAAP

financial measures

for the years

ended December

31, 2021 and 2020 that reflect the described items that were excluded

for one of those reasons.

CEO and CFO Certifications

First BanCorp.’s Chief Executive

Officer and Chief Financial Officer have

filed with the SEC certifications required by Section 302

and Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, 32.1

and 32.2 to this Annual Report on Form 10-K.

In addition, in 2022, First BanCorp’s

Chief Executive Officer provided to the NYSE his annual certification,

as required for all

NYSE listed companies, that he was not aware of any violation by the Corporation

of the NYSE corporate governance listing

standards.

Item 7A. Quantitative and Qualitative Disclosures about Market

Risk

The information required

herein is incorporated by

reference to the information

included under the sub-caption

“Interest Rate Risk

Management”

in Item

7 “Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations,”

of this

Annual

Report on Form 10-K.

112

Item 8. Financial Statements and Supplementary Data

FIRST BANCORP.

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

(PCAOB No.

173

)….…………………………..

113

Management’s Report on Internal Control over Financial Reporting

…………………………………………

115

Consolidated Statements of Financial Condition

……………………………………………………………...

116

Consolidated Statements of Income

……...…………………………………………………………………...

117

Consolidated Statements of Comprehensive (Loss) Income

……...………………………………………..…

118

Consolidated Statements of Cash Flows

………………………………………………………………………

119

Consolidated Statements of Changes in Stockholders’ Equity

………………………………………………..

120

Notes to Consolidated Financial Statements

…………………………………………………………………..

122

113

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Stockholders and the Board of Directors

of First BanCorp.

San Juan, Puerto Rico

Opinions on the Financial Statements and Internal Control

over Financial Reporting

have

audited

the

accompanying

consolidated

statements

financial

condition

First

BanCorp.

(the

"Company")

December 31, 2022 and 2021, the related consolidated

statements of income, comprehensive (loss) income, cash flows, and changes

stockholders’

equity

for

each

the

years

the

three-year

period

ended

December

31,

2022,

and

the

notes

(collectively

referred

the

"financial

statements").

also

have

audited

the

Company’s

internal

control

over

financial

reporting

December

31,

2022,

based

criteria

established

Internal

Control

–

Integrated

Framework:

(2013)

issued

the

Committee

Sponsoring Organizations of the Treadway

Commission (COSO).

In our opinion,

the financial statements

referred to above

present fairly,

in all material respects,

the financial position

of the Company

as of

December 31,

2022 and

2021, and

the results

of its

operations and

its cash

flows for

each of

the years

in the

three-year period

ended December

31, 2022

in conformity

with accounting

principles generally

accepted in

the United

States of

America.

Also in

our

opinion, the Company maintained,

in all material respects, effective

internal control over financial

reporting as of December

31, 2022,

based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The

Company’s

management

responsible

for

these

financial

statements,

for

maintaining

effective

internal

control

over

financial

reporting,

and

for

its

assessment

the

effectiveness

internal

control

over

financial

reporting,

included

the

accompanying

Management’s

Report

on Internal

Control

over

Financial

Reporting.

Our responsibility

is to

express an

opinion

on the

Company’s

financial statements

and an

opinion on

the Company’s

internal control

over financial

reporting based

on our

audits.

are a

public

accounting firm

registered with

the Public

Company Accounting

Oversight Board

(United States)

("PCAOB") and

are required

to be

independent with

respect to

the Company

in accordance

with the

U.S. federal

securities laws and

the applicable

rules and regulations

of the Securities and Exchange Commission and the PCAOB.

We conducted

our audits in accordance with the

standards of the PCAOB. Those standards require

that we plan and perform the audits

to obtain reasonable

assurance about whether

the financial statements are

free of material misstatement,

whether due to error

or fraud,

and whether effective internal control

over financial reporting was maintained in all material respects.

Our

audits

the

financial

statements

included

performing

procedures

assess

the

risks

material

misstatement

the

financial

statements, whether due to error or fraud,

and performing procedures that respond to

those risks. Such procedures included examining,

test basis,

evidence

regarding

the

amounts

and

disclosures

the

financial

statements.

Our

audits

also

included

evaluating

the

accounting

principles

used

and

significant

estimates

made

management,

well

evaluating

the

overall

presentation

the

financial statements. Our audit

of internal control over

financial reporting included obtaining

an understanding of internal

control over

financial reporting, assessing the risk that a material weakness

exists, and testing and evaluating the design

and operating effectiveness

of internal control

based on the

assessed risk.

Our audits also

included performing

such other procedures

as we considered

necessary

in the circumstances.

We believe that our audits

provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s

internal control over financial reporting is a

process designed to provide reasonable assurance

regarding the reliability of

financial reporting and

the preparation of

financial statements for

external purposes in

accordance with generally

accepted accounting

principles.

company’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that

(1)

pertain

the

maintenance

records

that,

reasonable

detail,

accurately

and

fairly

reflect

the

transactions

and

dispositions

the

assets

the

company; (2) provide

reasonable assurance that

transactions are recorded

as necessary to permit

preparation of financial

statements in

accordance with

generally accepted

accounting principles,

and that

receipts and

expenditures of

the company

are being

made only

accordance

with

authorizations

management

and

directors

the

company;

and

(3)

provide

reasonable

assurance

regarding

prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s

assets that could have a material effect

on the financial statements.

Because of its inherent limitations, internal control over

financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation

of effectiveness to

future periods are

subject to the

risk that controls

may become inadequate

because of changes

conditions, or that the degree of compliance with the policies or procedures

may deteriorate.

114

Critical Audit Matter

The

critical

audit

matter

communicated

below

is a

matter

arising

from

the

current

period

audit

the

financial

statements

that

was

communicated or required

to be communicated

to the audit

committee and that:

(1) relates to accounts

or disclosures that

are material

to the financial

statements and (2)

involved our especially

challenging, subjective,

or complex judgments.

The communication of

the

critical

audit

matter

does

not

alter

any

way

our

opinion

the

financial

statements,

taken

whole,

and

are

not,

communicating

the

critical

audit

matter

below,

providing

separate

opinion

the

critical

audit

matter

the

accounts

disclosures to which it relates.

Allowance for Credit Losses – Model and Forecast of Macroeconomic Variables

As described

in Notes

1 and

5 to

the financial

statements, the

allowance for

credit losses

(“ACL”) for

loans and

finance leases

is an

accounting

estimate

expected

credit

losses

over

the

contractual

life

financial

assets

carried

amortized

cost

and

off-balance-

sheet credit exposures.

The calculation

of the

ACL for

loans and

finance leases

is primarily

measured based

on a

probability

of default

/ loss

given

default

modeled approach. The

estimate of the

probability of default and

loss given default

assumptions uses economic

forecasts and relevant

current

and

forward-looking

macroeconomic

variables,

such

as:

unemployment

rate;

housing

and

real

estate

price

indices;

interest

rates; market

risk factors;

and gross

domestic

product, and

considers

conditions

throughout Puerto

Rico, the

Virgin

Islands,

and the

State of Florida.

A significant amount

of judgment is

required to

assess the reasonableness

of the selection

of economic forecasts

and

macroeconomic variables. Changes to these assumptions could have

a material effect on the Company’s

financial results.

The

model

and

the

current

and

forward-looking

macroeconomic

variables

used

contribute

significantly

the

determination

the

ACL for

loans and

finance leases.

identified the

assessment of

the model

design and

construction and

the assessment

of relevant

macroeconomic

variables

as a

critical audit

matter as

the impact

of these

judgments

represents a

significant

portion

of the

ACL for

loans

and

finance

leases

and

because

management’s

estimate

required

especially

subjective

auditor

judgment

and

significant

audit

effort, including the need for specialized skill.

The primary procedures we performed to address these critical audit matters included:

●

Testing

the effectiveness

of controls

over the

evaluation of

the selection

of economic

forecasts and

the current

and forward-

looking macroeconomic variables, including controls addressing:

Management’s review and

approval of the economic forecasts and macroeconomic variables.

Management’s

review

the

reasonableness

the

results

the

selection

economic

forecasts

and

macroeconomic variables used in the calculation.

●

Substantively

testing

management’s

process,

including

evaluating

their

judgments

and

assumptions,

for

economic

forecast

selection and macroeconomic variables, which included:

Evaluation of reasonableness of economic forecasts selection.

Evaluation

the

completeness

and

accuracy

data

inputs

used

basis

for

the

adjustments

relating

macroeconomic variables.

Evaluation,

with

the

assistance

professionals

with

specialized

skill

and

knowledge,

the

reasonableness

management’s

judgments related

to the

economic forecast

and macroeconomic

variables used

in the

determination

the

ACL

for

loans.

Among

other

procedures,

our

evaluation

considered

evidence

from

internal

and

external

sources, loan portfolio performance trends and whether such assumptions were

applied consistently period to period.

Analytical evaluation of the variables period to period for directional consistency

and testing for reasonableness.

/s/

Crowe LLP

We have served

as the Company’s auditor since 2018.

Fort Lauderdale, Florida

February 28, 2023

Stamp No. E511055 of the Puerto Rico

Society of Certified Public Accountants

was affixed to the record copy of this report.

115

Management’s Report on Internal Control

over Financial Reporting

To the Stockholders

and Board of Directors of First BanCorp.:

First BanCorp.’s

(the “Corporation”)

internal control

over financial

reporting is

a process

designed

and effected

by those

charged

with

governance,

management,

and

other

personnel,

provide

reasonable

assurance

regarding

the

reliability

financial

reporting

and the preparation of reliable

financial statements in accordance

with accounting principles generally

accepted in the United States of

America

(“GAAP”).

The

Corporation’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that:

(1) pertain to the

maintenance of records

that, in reasonable detail,

accurately and fairly reflect

the transactions and dispositions

of the

assets

the

Corporation;

(2) provide

reasonable

assurance

that

transactions

are

recorded

necessary

permit

the

preparation

financial

statements

accordance

with

GAAP,

and

that

receipts

and

expenditures

the

Corporation

are

being

made

only

accordance

with

authorizations

management

and

directors

the

Corporation;

and

(3) provide

reasonable

assurance

regarding

prevention,

or timely

detection and

correction

of unauthorized

acquisition,

use, or

disposition of

the Corporation’s

assets that

could

have a material effect on the financial statements.

Because of

its inherent

limitations, internal

control over

financial reporting

may not

prevent, or

detect and

correct misstatements.

Also,

projections

any

evaluation

effectiveness

future

periods

are

subject

the

risk

that

controls

may

become

inadequate

because of changes in conditions, or that the degree of compliance with the policies

and procedures may deteriorate.

Management

responsible

for

establishing

and

maintaining

effective

internal

control

over

financial

reporting.

Management

assessed

the

effectiveness

the

Corporation’s

internal

control

over

financial

reporting

December 31,

2022,

based

the

framework

set

forth

the

Committee

Sponsoring

Organizations

the

Treadway

Commission

(COSO)

Internal

Control-

Integrated

Framework

(2013).

Based

that

assessment,

management

concluded

that,

December

31,

2022,

the

Corporation’s

internal control over financial reporting is effective

based on the criteria established in Internal Control-Integrated Framework (2013).

The effectiveness

of FirstBancorp.’s

internal control over

financial reporting as

of December 31, 2022,

has been audited

by Crowe

LLP,

an independent public accounting firm, as stated in their accompanying

report dated February 28, 2023.

First BanCorp.

/s/

Aurelio Alemán

President and Chief Executive Officer

Date: February 28, 2023

/s/

Orlando Berges

Executive Vice President

and Chief Financial Officer

Date: February 28, 2023

116

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31,

2022

December 31, 2021

(In thousands, except for share information)

ASSETS

Cash and due from banks

478,480

2,540,376

Money market investments:

Time deposits with other financial institutions

300

Other short-term investments

1,725

2,382

Total money market investments

2,025

2,682

Available-for-sale debt securities, at fair value:

Securities pledged with creditors’ rights to repledge

81,103

321,180

Other available-for-sale debt securities

5,518,417

6,132,581

Total available-for-sale debt securities, at fair value (amortized cost 2022 - $

6,398,197

;

2021 - $

6,534,503

; allowance for credit losses (“ACL”) of $

458

as of December 31, 2022

and $

1,105

as of December 31, 2021)

5,599,520

6,453,761

Held-to-maturity debt securities, at amortized cost, net of ACL

of $

8,286

as of December 31, 2022 and $

8,571

as of December 31, 2021 (fair value 2022 - $

427,115

; 2021 - $

167,147

)

429,251

169,562

Equity securities

55,289

32,169

Total investment securities

6,084,060

6,655,492

Loans, net of ACL of $

260,464

(2021 - $

269,030

)

11,292,361

10,791,628

Mortgage loans held for sale, at lower of cost or market

12,306

35,155

Total loans, net

11,304,667

10,826,783

Accrued interest receivable on loans and investments

69,730

61,507

Premises and equipment, net

142,935

146,417

Other real estate owned (“OREO”)

31,641

40,848

Deferred tax asset, net

155,584

208,482

Goodwill

38,611

Other intangible assets

21,118

29,934

Other assets

305,633

234,143

Total assets

18,634,484

20,785,275

LIABILITIES

Non-interest-bearing deposits

6,112,884

7,027,513

Interest-bearing deposits

10,030,583

10,757,381

Total deposits

16,143,467

17,784,894

Securities sold under agreements to repurchase

75,133

300,000

Advances from the Federal Home Loan Bank ("FHLB")

675,000

200,000

Other borrowings

183,762

Accounts payable and other liabilities

231,582

214,852

Total liabilities

17,308,944

18,683,508

Commitments and contingencies (See Note 29)

(nil)

STOCKHOLDERS’ EQUITY

Common stock, $

0.10

par value, authorized,

2,000,000,000

shares;

223,663,116

shares issued;

182,709,059

shares outstanding (2021 -

201,826,505

shares outstanding)

22,366

Additional paid-in capital (See Note 1)

970,722

972,547

Retained earnings, includes legal surplus reserve of $

168,484

(2021 - $

137,591

)

1,644,209

1,427,295

Treasury stock, at cost

40,954,057

shares (2021 -

21,836,611

shares) (See Note 1)

(506,979)

(236,442)

Accumulated other comprehensive loss, net of tax of $

8,468

as of December 31, 2022 (2021 - $

9,786

)

(804,778)

(83,999)

Total stockholders’ equity

1,325,540

2,101,767

Total liabilities and stockholders’ equity

18,634,484

20,785,275

The accompanying notes are an integral part of these statements.

117

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

Year

Ended December 31,

2022

2021

2020

(In thousands, except per share information)

Interest and dividend income:

Loans

747,901

719,153

631,047

Investment securities

102,922

72,893

58,547

Money market investments and interest-bearing cash accounts

11,791

2,662

3,388

Total interest and dividend income

862,614

794,708

692,982

Interest expense:

Deposits

46,361

41,482

68,388

Securities sold under agreements to repurchase

7,555

9,963

6,645

Advances from FHLB

5,136

8,199

11,251

Other borrowings

8,269

5,135

6,376

Total interest expense

67,321

64,779

92,660

Net interest income

795,293

729,929

600,322

Provision for credit losses - expense (benefit):

Loans and finance leases

25,679

(61,720)

168,717

Unfunded loan commitments

2,736

(3,568)

1,183

Debt securities

(719)

(410)

1,085

Provision for credit losses - expense (benefit)

27,696

(65,698)

170,985

Net interest income after provision for credit losses

767,597

795,627

429,337

Non-interest income:

Service charges and fees on deposit accounts

37,823

35,284

24,612

Mortgage banking activities

15,260

24,998

22,124

Net gain on investment securities

13,198

Gain on early extinguishment of debt

Insurance commission income

13,743

11,945

9,364

Card and processing income

40,416

36,508

25,609

Other non-interest income

15,850

12,429

16,225

Total non-interest income

123,092

121,164

111,226

Non-interest expenses:

Employees' compensation and benefits

206,038

200,457

177,073

Occupancy and equipment

88,277

93,253

74,633

Business promotion

18,231

15,359

12,145

Professional service fees

47,848

59,956

52,633

Taxes, other than

income taxes

20,267

22,151

17,762

Federal Deposit Insurance Corporation ("FDIC") deposit insurance

6,149

6,544

6,488

Net (gain) loss on OREO operations

(5,826)

(2,160)

3,598

Credit and debit card processing expenses

22,736

22,169

19,144

Communications

8,723

9,387

8,437

Merger and restructuring costs

26,435

26,509

Other non-interest expenses

30,662

35,423

25,818

Total non-interest expenses

443,105

488,974

424,240

Income before income taxes

447,584

427,817

116,323

Income tax expense

142,512

146,792

14,050

Net income

305,072

281,025

102,273

Net income attributable to common stockholders

305,072

277,338

99,597

Net income per common share:

Basic

1.60

1.32

0.46

Diluted

1.59

1.31

0.46

The accompanying notes are an integral part of these statements.

118

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

INCOME

Year Ended

December 31,

2022

2021

2020

(In thousands)

Net income

305,072

281,025

102,273

Other comprehensive (loss) income, net of tax:

Available-for-sale debt securities:

Net unrealized holding (losses) gains on debt securities

(718,582)

(143,115)

61,791

Reclassification adjustment for provision for credit loss expense

368

Reclassification adjustment for net gains included in net income on sales

(13,198)

Defined benefit plans adjustments:

Net actuarial (loss) gain

(2,199)

3,660

(270)

Reclassification adjustment for amortization of net actuarial loss

Other comprehensive (loss) income for the year, net of tax

(720,779)

(139,454)

48,691

Total comprehensive (loss) income

(415,707)

141,571

150,964

Year Ended

December 31,

2022

2021

2020

(In thousands)

Income tax effect of items included in other comprehensive (loss) income:

Defined benefit plans adjustments:

Net actuarial (loss) gain

1,319

(2,199)

162

Reclassification adjustment for amortization of net actuarial loss

(1)

Total income tax effect of items included in other comprehensive (loss) income

1,318

(2,199)

162

The accompanying notes are an integral part of these statements.

119

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2022

2021

2020

(In thousands)

Cash flows from operating activities:

Net income

305,072

281,025

102,273

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

22,289

24,965

20,068

Amortization of intangible assets

8,816

11,407

5,912

Provision for credit losses - expense (benefit)

27,696

(65,698)

170,985

Deferred income tax expense (benefit)

54,216

118,323

(4,371)

Stock-based compensation

5,407

5,460

5,117

Gain on early extinguishment of debt

(94)

Gain on sales of investment securities

(13,198)

Unrealized gain on derivative instruments

(1,098)

(4,227)

(5,635)

Net gain on disposals or sales, and impairments of

premises and equipment and other assets

(706)

(32)

(215)

Net gain on sales of loans and valuation adjustments

(5,498)

(14,791)

(13,273)

Net amortization of discounts, premiums, and deferred

loan fees and costs

(7,853)

(25,294)

(8,602)

Originations and purchases of loans held for sale

(214,962)

(503,200)

(648,052)

Sales and repayments of loans held for sale

235,199

528,253

659,349

Amortization of broker placement fees

106

218

537

Net amortization of premiums and discounts on investment

securities

3,435

26,549

19,410

(Increase) decrease in accrued interest receivable

(11,340)

7,701

6,419

Increase (decrease) in accrued interest payable

1,706

(2,776)

(2,990)

(Increase) decrease in other assets

(2,437)

24,344

(5,018)

Increase (decrease) increase in other liabilities

20,437

(12,506)

9,116

Net cash provided by operating activities

440,485

399,721

297,738

Cash flows from investing activities:

Net (disbursements) repayments on loans held for investment

(603,853)

599,097

(335,152)

Proceeds from sales of loans held for investment

62,168

81,458

6,788

Proceeds from sales of repossessed assets

46,281

55,867

35,270

Proceeds from sales of available-for-sale debt securities

1,195,250

Purchases of available-for-sale debt securities

(512,327)

(3,447,921)

(3,820,148)

Proceeds from principal repayments and maturities of available-for-sale

debt securities

626,802

1,445,873

1,277,762

Purchases of held-to-maturity debt securities

(289,784)

Proceeds from principal repayments and maturities of

held-to-maturity debt securities

32,153

12,677

6,431

Additions to premises and equipment

(20,459)

(13,349)

(16,070)

Proceeds from sales of premises and equipment and

other assets

1,196

832

497

Net (purchases) redemptions of other investments securities

(23,637)

5,322

3,881

Proceeds from the settlement of insurance claims -

investing activities

550

Net (payments) cash acquired in acquisition

(3,381)

406,626

Net cash used in investing activities

(681,460)

(1,262,975)

(1,238,865)

Cash flows from financing activities:

Net (decrease) increase in deposits

(1,706,118)

2,472,579

1,767,441

Net proceeds (repayments) of short-term borrowings

550,133

(35,000)

Repayments of long-term borrowings

(500,000)

(240,000)

(95,282)

Proceeds from long-term borrowings

200,000

Proceeds from long-term reverse repurchase agreements

200,000

Repurchase of outstanding common stock

(277,769)

(216,522)

(206)

Dividends paid on common stock

(87,824)

(65,021)

(43,416)

Dividends paid on preferred stock

(2,453)

(2,676)

Redemption of preferred stock-

Series A through E

(36,104)

Net cash (used in) provided by financing activities

(1,821,578)

1,912,479

1,790,861

Net (decrease) increase in cash and cash equivalents

(2,062,553)

1,049,225

849,734

Cash and cash equivalents at beginning of year

2,543,058

1,493,833

644,099

Cash and cash equivalents at end of year

480,505

2,543,058

1,493,833

Cash and cash equivalents include:

Cash and due from banks

478,480

2,540,376

1,433,261

Money market instruments

2,025

2,682

60,572

480,505

2,543,058

1,493,833

The accompanying notes are an integral part of these statements.

120

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'

EQUITY

Year Ended December 31,

2022

2021

2020

(In thousands, except per share information)

Preferred Stock:

Balance at beginning of year

36,104

Redemption of Series A through E Preferred Stock

(36,104)

Balance at end of year

36,104

Common Stock:

Balance at beginning of year

22,366

22,303

22,210

Common stock issued under stock-based compensation

plan

Balance at end of year

22,366

22,303

Additional Paid-In Capital

(See Note 1)

Balance at beginning of year

972,547

965,385

960,342

Stock-based compensation expense

5,407

5,460

5,117

Common stock reissued/issued under stock-based compensation

plan

(7,365)

(63)

(93)

Restricted stock forfeited

133

531

Issuance costs of Series A through E Preferred Stock redeemed

1,234

Balance at end of year

970,722

972,547

965,385

Retained Earnings:

Balance at beginning of year

1,427,295

1,215,321

1,221,817

Impact of adoption of Accounting Standards Codification

("ASC" or "Codification")

Topic 326, "Financial Instruments - Credit Losses" ("ASC 326" or "CECL")

(62,322)

Balance at beginning of period (as adjusted for impact of adoption

of ASC 326)

1,159,495

Net income

305,072

281,025

102,273

Dividends on common stock (2022 - $

0.46

per share; 2021 - $

0.31

per share; 2020 - $

0.20

per share)

(88,158)

(65,364)

(43,771)

Dividends on preferred stock

(2,453)

(2,676)

Excess of redemption value over carrying value of Series

A through E Preferred Stock redeemed

(1,234)

Balance at end of year

1,644,209

1,427,295

1,215,321

Treasury Stock (at cost)

(See Note 1)

Balance at beginning of year

(236,442)

(19,389)

(19,170)

Common stock repurchases (See Note 17)

(277,769)

(216,522)

(200)

Common stock reissued under stock-based compensation plan

7,365

Restricted stock forfeited

(133)

(531)

(19)

Balance at end of year

(506,979)

(236,442)

(19,389)

Accumulated Other Comprehensive (Loss) Income, net of tax:

Balance at beginning of year

(83,999)

55,455

6,764

Other comprehensive (loss) income, net of tax

(720,779)

(139,454)

48,691

Balance at end of year

(804,778)

(83,999)

55,455

Total stockholders’ equity

1,325,540

2,101,767

2,275,179

The accompanying notes are an integral part of these statements.

121

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Nature of Business and Summary of Significant Accounting Policies

122

Note 2 –

Money Market Investments

138

Note 3 –

Debt Securities

139

Note 4 –

Loans Held for Investment

148

Note 5

–

Allowance for Credit Losses for Loans and Finance Leases

164

Note 6

–

Premises and Equipment

167

Note 7 –

Other Real Estate Owned

167

Note 8 –

Related-Party Transactions

168

Note 9

–

Goodwill and Other Intangibles

169

Note 10 –

Non-Consolidated Variable

Interest Entities (“VIE”) and Servicing Assets

171

Note 11 –

Deposits and Related Interest

176

Note 12 –

Securities Sold Under Agreements to Repurchase

178

Note 13 –

Advances from the Federal Home Loan Bank (“FHLB”)

180

Note 14 –

Other Borrowings

181

Note 15 –

Earnings per Common Share

182

Note 16 –

Stock-Based Compensation

183

Note 17 –

Stockholders’ Equity

185

Note 18 –

Other Comprehensive (Loss) Income

187

Note 19 –

Employee Benefit Plans

188

Note 20 –

Other Non-Interest Income

193

Note 21 –

Other Non-Interest Expenses

193

Note 22 –

Income Taxes

194

Note 23 –

Operating Leases

197

Note 24 –

Derivative Instruments and Hedging Activities

199

Note 25

–

Fair Value

202

Note 26

–

Revenue from Contracts with Customers

207

Note 27 –

Segment Information

211

Note 28 –

Supplemental Statement of Cash Flows Information

214

Note 29 –

Regulatory Matters, Commitments, and Contingencies

215

Note 30 –

First BanCorp. (Holding Company Only) Financial Information

218

122

NOTE 1

–

NATURE OF BUSINESS AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business

First BanCorp. (the “Corporation”)

is a publicly owned, Puerto

Rico-chartered financial holding

company organized under

the laws

of the Commonwealth

of Puerto Rico in

1948. The Corporation

is subject to regulation,

supervision, and examination

by the Board

Governors of

the Federal

Reserve System

(the “Federal

Reserve Board”).

Through its

subsidiaries, including

its banking

subsidiary,

FirstBank Puerto Rico (“FirstBank”

or the “Bank”), the Corporation

provides full-service commercial

and consumer banking services,

mortgage banking

services, automobile

financing, trust

services, insurance

agency services,

and other

financial products

and services

with operations in Puerto Rico, the United States, the U.S. Virgin

Islands (the “USVI”), and the British Virgin

Islands (the “BVI”).

The Corporation

has two

wholly-owned subsidiaries:

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), and

FirstBank Insurance

Agency,

Inc.

(“FirstBank

Insurance

Agency”).

FirstBank

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

the

Commissioner

Financial

Institutions

the

Commonwealth

Puerto

Rico

(the

“OCIF”)

and

the

Federal

Deposit

Insurance

Corporation

(“FDIC”).

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund.

FirstBank

also

operates

the

State

Florida,

subject

regulation

and

examination

the

Florida

Office

Financial

Regulation

and

the

FDIC;

the

USVI,

subject to regulation

and examination by

the USVI Division

of Banking, Insurance,

and Financial Regulation;

and in the

BVI, subject

to regulation

by the

British Virgin

Islands Financial

Services Commission.

The Consumer

Financial Protection

Bureau (the

“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

the

Commonwealth

Puerto

Rico

and

the

Division

Banking

and

Insurance

Financial

Regulation

the

USVI.

FirstBank conducts its

business through its

main office located

in San Juan, Puerto

Rico,

banking branches in

Puerto Rico,

eight

banking branches in the

USVI and the BVI, and

nine

banking branches in the

state of Florida (USA).

FirstBank has six wholly-owned

subsidiaries

with

operations

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

finance

company

specializing

the

origination

small

loans

with

offices

Puerto

Rico;

First

Management

Puerto

Rico,

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

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 properties;

and

a wholly-owned

subsidiary of

FirstBank organized

in 2022

under the

laws of

the Commonwealth

of Puerto

Rico and

Act 60

2019, which will commence operations in 2023 and will engage in investing

and lending transactions.

General

The accompanying

consolidated audited financial

statements have

been prepared

in conformity

with generally accepted

accounting

principles (“GAAP”). The following is a description of the Corporation’s

most significant accounting policies.

Principles of consolidation

The

consolidated

financial

statements

include

the

accounts

the

Corporation

and

its

subsidiaries.

All

significant

intercompany

balances

and

transactions

have

been

eliminated

consolidation.

The

results

operations

companies

assets

acquired

are

included

from

the

date

acquisition.

Statutory

business

trusts

that

are

wholly-owned

the

Corporation

and

are

issuers

trust-

preferred

securities

(“TRuPs”)

and

entities

which

the

Corporation

has

non-controlling

interest,

are

not

consolidated

the

Corporation’s

consolidated

financial

statements

accordance

with

authoritative

guidance

issued

the

Financial

Accounting

Standards Board

(“FASB”)

for consolidation

of variable

interest entities

(“VIEs”). See

“Variable

Interest Entities”

below for

further

details regarding the Corporation’s

accounting policy for these entities

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

123

Use of estimates in the preparation of financial statements

The

preparation

financial

statements

conformity

with GAAP

requires

management

make

estimates

and

assumptions

that

affect

the reported

amounts of

assets, liabilities,

and contingent

liabilities as

of the

date of

the financial

statements, and

the reported

amounts of revenues and expenses during the reporting period.

Management

makes

significant

estimates

determining

the

allowance

for

credit

losses

(“ACL”),

income

taxes,

well

fair

value

measurements

investment

securities,

goodwill,

other

intangible

assets,

pension

assets

and

liabilities,

mortgage

servicing

rights, and loans held for sale.

Actual results could differ from those estimates.

Change in accounting method

Effective

on September

30, 2022,

the Corporation

changed the

accounting method

for accounting

for its

treasury stock

from a

par

value to a

cost method. The

Corporation believes the

cost method is

preferable as it

more accurately reflects

in treasury stock

the cost

of stocks repurchased and

it enhances comparability of

financial results with other

financial institutions. The Corporation

reflected the

application of

this new accounting

method retrospectively

by adjusting

prior period

amounts for

treasury stock

and additional

paid-in

capital.

The

retrospective

adjustment,

which

was

reflected

the

consolidated

statements

financial

condition

and

statements

changes

stockholders’

equity,

was

limited

increase

the

beginning

balance

treasury

stock

January

2020

million and an increase in

additional paid-in capital for

the same amount, which was

considered immaterial. These adjustments

had no

impact

previously

issued

statements

income,

comprehensive

income,

cash

flows,

and

executive

compensation

and

regulatory

capital measures.

Cash and cash equivalents

For purposes of

reporting cash

flows, cash and

cash equivalents include

cash on hand,

cash items in

transit, and

amounts due

from

the Federal Reserve Bank of New York

(the “Federal Reserve” or the “FED”) and other

depository institutions. The term also includes

money market funds and short-term investments with original maturities of

three months or less.

Investment securities

The Corporation classifies its investments in debt and equity securities into one

of four categories:

Held-to-maturity

— Debt

securities that

the entity

has the

intent and

ability to

hold to

maturity.

These securities

are carried

amortized

cost.

The

Corporation

may

not

sell

transfer

held-to-maturity

securities

without

calling

into

question

its

intent

hold other debt securities to

maturity, unless

a nonrecurring or unusual event

that could not have been reasonably

anticipated has

occurred.

Trading

— Debt securities that

are bought and

held principally for

the purpose of

selling them in

the near term.

These securities

are

carried

fair

value,

with

unrealized

gains

and

losses

reported

earnings.

December

31,

2022,

and

2021,

the

Corporation did not hold debt securities for trading purposes.

Available-for-sale

— Debt

securities not

classified as

held-to-maturity or

trading. These

securities are

carried at

fair value,

with

unrealized

holding

gains

and

losses,

net

deferred

taxes,

reported

other

comprehensive

loss

(“OCL”)

separate

component of

stockholders’ equity.

The unrealized

holding gains

and losses

do not

affect earnings

until they

are realized,

or an

ACL is recorded.

Equity

securities

—

Equity

securities

that

not

have

readily

available

fair

values

are

classified

equity

securities

the

consolidated

statements

financial

condition.

These

securities

are

stated

cost

less

impairment,

any.

This

category

principally

composed of

FHLB stock

that the

Corporation owns

to comply

with FHLB

regulatory requirements.

The realizable

value of

the FHLB

stock equals

its cost.

Also included

in this

category

are marketable

equity securities

held at

fair value

with

changes in unrealized gains or losses recorded through earnings in other

non-interest income.

Premiums

and

discounts

debt

securities

are

amortized

as an

adjustment

interest

income

investments

over

the life

the

related securities

under the

interest method

without anticipating

prepayments, except

for mortgage-backed

securities (“MBS”)

where

prepayments are anticipated. Premiums on

callable debt securities, if any,

are amortized to the earliest call date.

Purchases and sales of

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

124

securities are

recognized on

a trade-date

basis, the

date the

order to

buy or

sell is executed

Gains and

losses on

sales are

determined

using the specific identification method.

A debt

security

is placed

on nonaccrual

status at

the time

any

principal

or interest

payment

becomes 90 days

delinquent.

Interest

accrued

but

not

received

for

security

placed

nonaccrual

reversed

against

interest

income.

See

Note

–

Debt

Securities

for

additional information on nonaccrual debt securities.

Allowance

for

Credit

Losses

–

Held-to-Maturity

Debt

Securities:

December

31,

2022,

the

held-to-maturity

debt

securities

portfolio consisted of U.S. government-sponsored entities (“GSEs”)

MBS and Puerto Rico municipal bonds.

The ACL

on held-to-maturity

debt securities

is based

on an

expected loss

methodology referred

to as

current expected

credit loss

(“CECL”)

methodology

major

security

type.

Any

expected

credit

loss

provided

through

the

ACL

held-to-maturity

debt

securities

and

deducted

from

the

amortized

cost

basis

the

security

that

the

statement

financial

condition

reflects

the

net

amount the Corporation expects to collect.

The Corporation

does not

recognize an

ACL for

GSEs’ MBS

since they

are either

explicitly or

implicitly guaranteed

by the

U.S.

government,

are highly

rated by

major rating

agencies, and

have a

long history

of no

credit losses.

For the

ACL of

held-to-maturity

Puerto

Rico municipal

bonds,

the Corporation

considers historical

credit loss

information

that is

adjusted for

current conditions

and

reasonable

and

supportable

forecasts.

These

Puerto

Rico

municipal

obligations

typically

are

not

issued

bearer

form, nor

are they

registered

with

the

Securities

and

Exchange

Commission

(“SEC”)

and

are

not

rated

external

credit

agencies.

These

financing

arrangements with Puerto

Rico municipalities were

issued in bond form

and accounted for as

securities but underwritten as

loans with

features

that

are

typically

found

commercial

loans.

Accordingly,

similar

commercial

loans,

internal

risk

rating

(

i.e

pass,

special

mention,

substandard,

doubtful,

loss)

assigned

each

bond

the

time

issuance

acquisition

and

monitored

continuous basis

with a

formal assessment

completed,

at a

minimum, on

a quarterly

basis. The

Corporation determines

the ACL

for

held-to-maturity

Puerto

Rico

municipal

bonds

based

the

product

cumulative

probability

default

(“PD”)

and

loss

given

default (“LGD”),

and the amortized

cost basis of

each bond over

its remaining expected

life. PD estimates

represent the point

-in-time

which

the

developed,

and

are

updated

quarterly

based

on,

among

other

things,

the

payment

performance

experience,

financial

performance

and

market

value

indicators,

and

current

and

forecasted

relevant

forward-looking

macroeconomic

variables

over the

expected life

of the

bonds,

to determine

a lifetime

term structure

PD curve.

LGD estimates are

determined based

on, among

other

things,

historical

charge-off

events

and

recovery

payments

(if

any),

government

sector

historical

loss

experience,

well

relevant current

and forecasted

macroeconomic expectations

of variables,

such as unemployment

rates, interest

rates, and

market risk

factors based on industry

performance, to determine a

lifetime term structure LGD

curve. Under this approach,

all future period losses

for each

instrument are

calculated using

the PD

and LGD

loss rates

derived

from the

term structure

curves applied

to the

amortized

cost

basis

each

bond.

For

the

relevant

macroeconomic

expectations

variables,

the

methodology

considers

initial

forecast

period

“reasonable

and

supportable

period”)

two

years

and

reversion

period

three

years,

utilizing

straight-line

approach and

reverting back

to the

historical macroeconomic

mean. After

the reversion

period, the

Corporation uses

a historical

loss

forecast period covering the remaining contractual

life based on the changes in key historical

economic variables during representative

historical

expansionary

and

recessionary

periods.

Furthermore,

the

Corporation

periodically

considers

the

need

for

qualitative

adjustments

the

ACL.

Qualitative

adjustments

may

and

include,

but

not

limited

to,

factors

such

as:

(i)

management’s

assessment

economic

forecasts

used

the

model

and

how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization

specific

risks

such

credit

concentrations,

collateral

specific risks, nature

and size of

the portfolio

and external factors

that may ultimately

impact credit quality,

and (iii) other

limitations

associated with factors such as changes in underwriting and resolution strategies,

among others.

The Corporation

has elected not

to measure

an ACL on

accrued interest related

to held-to-maturity

debt securities,

as uncollectible

accrued

interest receivables

are written

off

on a

timely manner.

See Note

3 –

Debt Securities

for additional

information

about ACL

balances for

held-to-maturity debt

securities, activity

during the

period, and

information about

changes in

circumstances that

caused

changes in the ACL for held-to-maturity debt securities during the years ended December

31, 2022, 2021, and 2020.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

125

Allowance

for

Credit

Losses

–

Available-for-Sale

Debt

Securities:

For

available-for-sale

debt

securities

unrealized

loss

position, the Corporation first assesses whether

it intends to sell, or it is more

likely than not that it will be required

to sell, the security

before

recovery

its

amortized

cost

basis.

either

the

criteria

regarding

intent

requirement

sell

met,

the

security’s

amortized cost

basis is

written down

to fair

value. Any

previously recognized

ACL should

first be

written off

and

the write-down

excess of such ACL would be recorded through

a charge to the provision for credit losses. For available

-for-sale debt securities that do

not

meet

the

aforementioned

criteria,

the

Corporation

evaluates

whether

the

decline

fair

value

has

resulted

from

credit

losses

other

factors.

making

this

assessment,

management

considers

the

cash

position

the

issuer

and

its

cash

and

capital

generation

capacity,

which could

increase or

diminish the

issuer’s ability

to repay

its bond

obligations, the

extent to

which the

fair value

is less

than

the

amortized

cost

basis,

any

adverse

change

the

credit

conditions

and

liquidity

the

issuer,

taking

into

consideration

the

latest

information

available

about

the

financial

condition

the

issuer,

credit

ratings,

the

failure

the

issuer

make

scheduled

principal or interest payments, recent legislation and

government actions affecting the issuer’s

industry, and

actions taken by the issuer

to deal with

the economic climate.

The Corporation also

takes into consideration

changes in the near-term

prospects of the underlying

collateral

security,

any,

such

changes

default

rates,

loss

severity

given

default,

and

significant

changes

prepayment

assumptions

and

the

level

cash

flows

generated

from

the

underlying

collateral,

any,

supporting

the

principal

and

interest

payments

on the

debt

securities. If

this assessment

indicates that

a credit

loss exists,

the

present

value

of cash

flows expected

to be

collected from

the security

is compared

to the

amortized cost

basis of

the security.

If the

present value

of cash

flows expected

to be

collected is less than the amortized

cost basis, a credit loss exists and

the Corporation records an ACL for

the credit loss, limited to the

amount by which

the fair value

is less than

the amortized cost

basis. The Corporation

recognizes in OCL

any impairment that

has not

been recorded through an ACL. Non-credit-related impairments result from

other factors, including changes in interest rates.

The Corporation

records changes

in the

ACL as

a provision

for (or

reversal of)

credit loss

expense. Losses

are charged

against the

allowance

when

management

believes

the

uncollectability

available-for-sale

debt

security

confirmed

when

either

the

criteria regarding

intent or requirement

to sell is met.

The Corporation

has elected not

to measure an

ACL on accrued

interest related

to available-for-sale debt securities, as uncollectible accrued interest

receivables are written off on a timely manner.

Substantially all

of the

Corporation’s

available-for-sale debt

securities are

issued by

GSEs. These

securities are

either explicitly

implicitly guaranteed

by the

U.S. government,

are highly

rated by

major rating

agencies, and

have a

long history

of no

credit losses.

Accordingly,

there

zero-credit

loss

expectation

these

securities.

For

further

information,

including

the

methodology

and

assumptions

used

for

the

discounted

cash

flow

analyses

performed

other

available-for-sale

debt

securities

such

private

label

MBS and

bonds issued

by the Puerto

Rico Housing

Finance Authority

(“PRHFA”),

see Note

3 –

Debt Securities,

and Note

25 –

Fair

Value.

Loans held for investment

Loans that the

Corporation has

the ability and

intent to hold

for the foreseeable

future are classified

as held

for investment

and are

reported

at amortized

cost, net

of its

ACL. The

substantial majority

of the

Corporation’s

loans are

classified as

held for

investment.

Amortized cost is the principal outstanding balance,

net of unearned interest, cumulative charge

-offs, unamortized deferred origination

fees

and

costs,

and

unamortized

premiums

and

discounts.

The

Corporation

reports

credit

card

loans

their

outstanding

unpaid

principal balance plus uncollected

billed interest and fees

net of such amounts

deemed uncollectible. Interest

income is accrued on

the

unpaid

principal

balance.

Fees

collected

and

costs

incurred

the

origination

new

loans

are

deferred

and

amortized

using

the

interest

method

that

approximates

the

interest

method

over

the

term

the

loan

adjustment

interest

yield.

Unearned

interest

certain

personal

loans,

auto

loans,

and

finance

leases

and

discounts

and

premiums

are

recognized

income

under a

method that

approximates the

interest method.

When a

loan is paid-off

or sold,

any remaining

unamortized net

deferred fees,

or costs, discounts and premiums are included in loan interest income

in the period of payoff.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

126

Nonaccrual

and

Past-Due

Loans

which

the

recognition

interest

income

has

been

discontinued

are

designated

nonaccrual.

Loans

are

classified

nonaccrual

when

they

are

days

past

due

for

interest

and

principal,

except

for

residential

mortgage loans insured or guaranteed

by the Federal Housing Administration

(the “FHA”), the Veterans

Administration (the “VA”)

the

PRHFA,

and

credit

card

loans.

the

Corporation’s

policy

report

delinquent

mortgage

loans

insured

the

FHA,

guaranteed by

the VA

or the

PRHFA,

as loans

past due

days and

still accruing

as opposed

to nonaccrual

loans since

the principal

repayment is insured or guaranteed. However,

the Corporation discontinues the recognition of

income relating to FHA/VA

loans when

such

loans

are

over

months

delinquent,

taking

into

consideration

the

FHA

interest

curtailment

process,

and

relating

PRHFA

loans when

such loans are

over

days delinquent.

Credit card loans

continue to

accrue finance charges

and fees until

charged off

180

days. Loans

generally may

be placed

on nonaccrual

status prior

to when

required by

the policies

described above

when the

full

and

timely

collection

interest

principal

becomes

uncertain

(generally

based

assessment

the

borrower’s

financial

condition

and

the

adequacy

collateral,

any).

When

loan

placed

nonaccrual

status,

any

accrued

but

uncollected

interest

income

reversed

and

charged

against

interest

income

and

amortization

any

net

deferred

fees

suspended.

Interest

income

nonaccrual

loans

recognized

only

the

extent

received

cash.

However,

when

there

doubt

regarding

the

ultimate

collectability of loan

principal, all cash

thereafter received is

applied to reduce

the carrying value of

such loans (

i.e.

, the cost recovery

method). Under the cost-recovery

method, interest income is not

recognized until the loan balance has

been collected in full, including

the charged-off

portion. Generally,

the Corporation returns

a loan to

accrual status when

all delinquent interest

and principal becomes

current under

the terms of

the loan agreement,

or after a

sustained period of

repayment performance

(

six months

) and the

loan is well

secured and in

the process of collection,

and full repayment

of the remaining

contractual principal and

interest is expected.

Loans that

are

past

due

days

principal

interest

are

considered

delinquent,

with

the

exception

residential

mortgage,

commercial mortgage,

and construction loans,

which are considered

past due when

the borrower is

in arrears on

two or more

monthly

payments.

The

Corporation

has

elected

not

measure

ACL

accrued

interest

loans

held

for

investment,

uncollectible accrued interest receivables

are written off on a timely manner.

Loans Acquired

–

Loans acquired through a purchase

or a business combination

are recorded at their fair

value as of the acquisition

date.

The

Corporation

performs

assessment

acquired

loans

first

determine

such

loans

have

experienced

than

insignificant deterioration

in credit

quality since

their origination

and thus

should be

classified and

accounted for

as purchased

credit

deteriorated

(“PCD”)

loans.

For

loans

that

have

not

experienced

than

insignificant

deterioration

credit

quality

since

origination,

referred

to as

non-PCD loans,

the

Corporation

records

such loans

at fair

value,

with any

resulting

discount or

premium

accreted

amortized

into

interest

income

over

the

remaining

life

the

loan

using

the

interest

method.

Additionally,

upon

the

purchase or acquisition of non-PCD loans,

the Corporation measures and records

an ACL based on the Corporation’s

methodology for

determining

the

ACL.

The

ACL for

non-PCD

loans

recorded

through

charge

the

provision

for

credit

losses

the

period

which the loans are purchased or acquired.

Acquired loans that are classified

as PCD are recognized at fair

value, which includes any premiums

or discounts resulting from

the

difference between

the initial amortized

cost basis and

the par value.

Premiums and non-credit

loss related discounts

are amortized or

accreted into interest

income over the

remaining life of

the loan using

the interest method.

Unlike non-PCD loans,

the initial ACL

for

PCD loans is established through an adjustment

to the acquired loan balance and not through a charge

to the provision for credit losses

in the period in which the loans are acquired. At acquisition, the ACL for

PCD loans, which represents the fair value credit discount, is

determined

using

discounted

cash

flow

method

that

considers

the

PDs

and

LGDs

used

the

Corporation’s

ACL

methodology.

Characteristics

PCD

loans

include

the

following:

delinquency,

payment

history

since

origination,

credit

scores

migration

and/or

other

factors

the Corporation

may

become

aware of

through its

initial analysis

of acquired

loans that

may

indicate

there has

been

more than

insignificant deterioration

in credit

quality since

a loan’s

origination. In

connection with

the Banco

Santander Puerto

Rico

(“BSPR”)

acquisition

September

2020,

the

Corporation

acquired

PCD

loans

with

aggregate

fair

value

acquisition

approximately $

752.8

million, and recorded

an initial ACL

of approximately $

28.7

million, which was added

to the amortized

cost of

the loans.

Subsequent

acquisition,

the

ACL

for

both

non-PCD

and

PCD

loans

determined

pursuant

the

Corporation’s

ACL

methodology in the same manner as all other loans.

For PCD loans

that prior to

the adoption of

ASC 326 were

classified as purchased

credit impaired (“PCI”)

loans and accounted

for

under

the

FASB

Accounting

Standards

Codification

(the

“Codification”

“ASC”)

Subtopic

310-30,

“Accounting

for

Purchased

Loans Acquired

with Deteriorated

Credit Quality”

(ASC Subtopic

310-30), the

Corporation adopted

ASC 326

using the

prospective

transition approach.

As allowed

by ASC

326, the

Corporation elected

to maintain

pools of

loans accounted

for under

ASC Subtopic

310-30 as “units

of accounts,”

conceptually treating

each pool as

a single

asset. As of

December 31,

2022, such

PCD loans consisted

of $

101.7

million of residential mortgage

loans and $

1.9

million of commercial

mortgage loans acquired by

the Corporation as part

acquisitions

completed

prior

2020.

These

transactions

include

transaction

completed

February

27,

2015,

which

FirstBank

acquired

ten

Puerto

Rico

branches

Doral

Bank,

acquired

certain

assets,

including

PCD

loans,

and

assumed

deposits,

through an alliance with

Banco Popular of Puerto

Rico, which was the successful

lead bidder with the

FDIC on the failed Doral

Bank,

as well as other

co-bidders, and the

acquisition from Doral

Financial in the first

quarter of 2014

of all of its

rights, title and

interest in

first

and

second

residential

mortgage

loans

full

satisfaction

secured

borrowings

owed

such

entity

FirstBank.

the

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

127

Corporation

elected

maintain

pools

units

account

for

loans

previously

accounted

for

under

ASC

Subtopic

310-30,

the

Corporation is

not able

to remove

loans from

the pools

until they

are paid

off, written

off or

sold (consistent

with the

Corporation’s

practice

prior

adoption

ASC

326),

but

required

ASC

326

for

purposes

the

ACL.

Regarding

interest

income

recognition for PCD loans that

existed at the time of adoption

of ASC 326, the prospective transition

approach for PCD loans required

ASC

326

was

applied

pool

level,

which

froze

the

effective

interest

rate

the

pools

January

2020.

According

regulatory guidance,

the determination

of nonaccrual

or accrual

status for

PCD loans

that the

Corporation has

elected to

maintain in

previously

existing

pools

pursuant

to the

policy

election

right upon

adoption of

ASC 326

should

be made

at the

pool level,

not the

individual

asset level.

In addition,

the guidance

provides that

the Corporation

can continue

accruing interest

and not

report the

PCD

loans

being

nonaccrual

status

the

following

criteria

are

met:

(i)

the

Corporation

can

reasonably

estimate

the

timing

and

amounts

cash

flows

expected

collected,

and

(ii)

the

Corporation

did

not

acquire

the

asset

primarily

for

the

rewards

ownership

the

underlying

collateral,

such

use

the

collateral

operations

improving

the

collateral

for

resale.

Thus,

the

Corporation

continues

exclude

these

pools

PCD

loans

from

nonaccrual

loan

statistics.

accordance

with

ASC

326,

the

Corporation

did

not

reassess

whether

modifications

individual

acquired

loans

accounted

for

within

pools

were

troubled

debt

restructurings (“TDRs”) as of the date of adoption.

Charge-off

of Uncollectible

Loans -

Net charge

-offs consist

of the

unpaid principal

balances of

loans held

for investment

that the

Corporation

determines are

uncollectible,

net of

recovered amounts.

The Corporation

records charge

-offs as

a reduction

to the

ACL

and subsequent recoveries of previously charged-off

amounts are credited to the ACL.

The Corporation

designates as

collateral dependent

certain commercial,

residential and

consumer loans

secured by

collateral when

foreclosure is probable or when repayment

is expected to be provided substantially through

the operation or sale of the collateral

when

the borrower is experiencing

financial difficulties based

on its assessment as

of the reporting

date. Commercial and

construction loans

are considered collateral

dependent when they exhibit

specific risk characteristics such

as repayment capacity under

certain thresholds

or credit deterioration. Residential mortgage loans are

considered collateral dependent when

180

days or more past due and secured by

residential real estate.

Moreover, since

the ACL of auto

loans and finance

leases is calculated

using either a

PD/LGD model or

a risk-

adjusted

discounted

cash

flow

method

for

loans

modified

reasonably

expected

modified

TDR

and

performing

accordance

with

restructured

terms,

these

loans

are

not

considered

collateral

dependent.

The

ACL

collateral

dependent

loans

based on the fair value of the collateral at the reporting date, adjusted for undiscounted

estimated costs to sell.

Collateral

dependent

loans

the

construction,

commercial

mortgage,

and

commercial

and

industrial

(“C&I”)

loan

portfolios

are

written

down

their

net

realizable

value

(fair

value

collateral,

less

estimated

costs

sell)

when

loans

are

considered

uncollectible and

have balances

of $

0.5

million or

more. Within

the consumer

loan portfolio,

closed-end consumer

loans are

charged

off when

payments are

120

days in

arrears. Open-end

(revolving credit)

consumer loans,

including credit

card loans,

are charged

off

when

payments

are

180

days

arrears.

Residential

mortgage

loans

that

are

180

days

delinquent

are

reviewed

and

charged-off,

needed, to

the fair

value of

the underlying

collateral less

cost to

sell. Generally,

all loans

may be

charged off

or written

down to

the

fair

value

the

collateral

prior

the

application

the

policies

described

above

loss-confirming

event

has

occurred.

Loss-

confirming

events

include,

but

are

not

limited

to,

bankruptcy

(unsecured),

continued

delinquency,

receipt

asset

valuation

indicating a collateral deficiency when the asset is the sole source of repayment.

Troubled

Debt Restructurings

- A restructuring

of a loan

constitutes a TDR

if the creditor,

for economic

or legal reasons

related to

the

debtor’s

financial

difficulties,

grants

concession

the

debtor

that

would

not

otherwise

consider.

However,

not

all

loan

modifications

are TDRs.

Modifications

resulting

in TDRs

may

include

changes to

one

or more

terms of

the loan,

including

but not

limited to,

a change

in interest

rate, an

extension of

the repayment

period, a

reduction in

payment amount,

and partial

forgiveness

deferment of principal

or accrued interest.

TDR loans are

classified as either

accrual or nonaccrual

loans. Loans in

accrual status may

remain in accrual status when

their contractual terms have been

modified in a TDR if the

loans had demonstrated performance

prior to

the restructuring

and payment in

full under the

restructured terms

is expected.

Otherwise, loans

on nonaccrual

status and

restructured

as TDRs will remain

on nonaccrual

status until the borrower

has proven the

ability to perform

under the modified

structure, generally

for a minimum of six months, and there is evidence that such payments can, and

are likely to, continue as agreed.

A loan

that had

previously been

modified in

a TDR

and is

subsequently refinanced

under then-current

underwriting standards

at a

market rate with no concessionary terms is accounted for as a new loan and is no

longer reported as a TDR.

Refer

Accounting

Standards

Updates

(“ASU”)

2022-02,

“Financial

Instruments

–

Credit

Losses

(Topic

326):

Troubled

Debt

Restructurings and

Vintage

Disclosures” below for

information on the

amendments to the

TDR guidance that

are effective

on or after

January 1, 2023

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

128

Allowance for credit losses for loans and finance leases

The ACL

for

loans and

finance leases

held

for

investment

is a

valuation

account

that is

deducted

from the

loans’

amortized

cost

basis

present

the

net

amount

expected

collected

loans.

Loans

are

charged-off

against

the

allowance

when

management

confirms the loan balance is uncollectable.

The Corporation

estimates the

allowance using

relevant

available information,

from internal

and external

sources, relating

to past

events,

current

conditions,

and

reasonable

and

supportable

forecasts.

Historical

credit

loss

experience

significant

input

for

the

estimation of expected

credit losses, as

well as adjustments

to historical loss

information made for

differences in

current loan-specific

risk

characteristics,

such

any

difference

underwriting

standards,

portfolio

mix,

delinquency

level,

term.

Additionally,

the

Corporation’s

assessment

involves

evaluating

key

factors,

which

include

credit

and

macroeconomic

indicators,

such

changes

unemployment rates, property values, and other relevant

factors, to account for current and forecasted market

conditions that are likely

to cause

estimated

credit losses

over

the life

of the

loans to

differ

from historical

credit losses.

Expected

credit losses

are estimated

over the contractual term

of the loans, adjusted by

prepayments when appropriate.

The contractual term excludes

expected extensions,

renewals, and

modifications unless

either of

the following

applies: the

Corporation has

a reasonable

expectation at

the reporting

date

that a

TDR will

be executed

with an

individual borrower

or the

extension or

renewal options

are included

in the original

or modified

contract at the reporting date and are not unconditionally cancellable by

the Corporation.

The

Corporation

estimates

the

ACL

primarily

based

PD/LGD

modeled

approach,

individually

primarily

for

collateral

dependent loans and certain TDR

loans. The Corporation evaluates

the need for changes to the

ACL by portfolio segments and

classes

loans

within

certain

those

portfolio

segments.

Factors

such

the

credit

risk

inherent

portfolio

and

how

the Corporation

monitors the

related quality,

as well

as the

estimation approach

to estimate

credit losses,

are considered

in the

determination of

such

portfolio segments and classes. The Corporation has identified the following

portfolio segments:

●

Residential

mortgage

– Residential

mortgage

loans

are

loans

secured

residential

real

property

together

with

the

right

receive

the payment

of principal

and interest

on the

loan. The

majority of

the Corporation’s

residential

loans are

fixed-rate

first lien closed-end loans secured by 1-4 single-family residential properties.

●

Commercial

mortgage

– Commercial

mortgage

loans

are

loans

secured

primarily

commercial

real

estate

properties

for

which

the

primary

source

repayment

comes

from

rent

and

lease

payments

that

are

generated

income-producing

property.

●

Commercial and Industrial

– C&I loans include both unsecured and secured

loans for which the primary source of repayment

comes

from

the

ongoing

operations

and

activities

conducted

the

borrower

and

not

from

rental

income

the

sale

refinancing

any

underlying

real

estate

collateral;

thus,

credit

risk

largely

dependent

the

commercial

borrower’s

current

and

expected

financial condition.

The

C&I

loan

portfolio

consists

loans

granted

large

corporate

customers

well as middle-market customers across several industries, and the government

sector.

●

Construction

–

Construction

loans

consisted

generally

loans

secured

real

estate

made

finance

the

construction

industrial,

commercial,

residential

buildings

and

included

loans

finance

land

development

preparation

for

erecting

new

structures.

These

loans

involve

inherently

higher

level

risk

and

sensitivity

market

conditions.

Demand

from

prospective tenants or purchasers may erode after construction begins because

of a general economic slowdown or otherwise.

●

Consumer

–

Consumer

loans

generally

consisted

unsecured

and

secured

loans

extended

individuals

for

household,

family, and other personal

expenditures, including several classes of products.

For

purposes

the

ACL

determination,

the

Corporation

stratifies

portfolio

segments

two

main

regions

(

i.e.,

the

Puerto

Rico/Virgin

Islands

region

and

the

Florida

region).

The

ACL

measured

using

PD/LGD

model

that

calculated

based

the

product of a

cumulative PD and

LGD. PD and

LGD estimates are

updated quarterly

for each loan

over the remaining

expected life

determine

lifetime

term

structure

curves.

Under

this approach,

the

Corporation

calculates losses

for

each

loan

for

all future

periods

using the

PD and

LGD loss

rates derived

from the

term structure

curves applied

to the

amortized cost

basis of

the loans,

considering

prepayments.

For

residential

mortgage

loans,

the

Corporation

stratifies

the

portfolio

segment

the

following

two

classes:

(i)

government-

guaranteed

residential

mortgage

loans,

and

(ii)

conventional

mortgage

loans.

Government-guaranteed

loans

are

those

originated

qualified

borrowers

under

the

FHA

and

the

standards.

Originated

loans

that

meet

the

FHA’s

standards

qualify

for

the

FHA’s

insurance program whereas

loans that meet the

standards of the VA

are guaranteed by

such entity.

No credit losses are

determined for

loans insured or guaranteed

by the FHA or the VA

due to the explicit

guarantee of the U.S. federal

government. On the other

hand, an

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

129

ACL is

calculated for

conventional

residential mortgage

loans, which

are loans

that do

not qualify

under the

FHA or

programs.

estimates

are

based

on,

among

other

things,

historical

payment

performance

and

relevant

current

and

forward-looking

macroeconomic variables,

such as regional

unemployment rates. On

the other hand,

LGD estimates are based

on, among other

things,

historical

charge-off

events

and

recovery

payments,

loan-to-value

attributes,

and

relevant

current

and

forecasted

macroeconomic

variables, such as the regional housing price index.

For commercial

mortgage loans,

PD estimates

are based on,

among other

things, industry historical

loss experience,

property type,

occupancy,

and

relevant

current

and

forward-looking

macroeconomic

variables.

the

other

hand,

LGD

estimates

are

based

historical charge-off events and recovery

payments, industry historical loss experience, specific attributes

of the loans, such as loan-to-

value,

debt

service

coverage

ratios,

and

net

operating

income,

well

relevant

current

and

forecasted

macroeconomic

variables

expectations,

such

commercial

real

estate

price

indexes,

the

gross

domestic

product

(“GDP”),

interest

rates,

and

unemployment

rates, among others.

For C&I

loans, PD

estimates are

based on

industry historical

loss experience,

financial performance

and market

value indicators,

and

current

and

forecasted

relevant

forward-looking

macroeconomic

variables.

the

other

hand,

LGD

estimates

are

based

industry

historical

loss

experience,

specific

attributes

the loans,

such

as loan

value,

well

as relevant

current

and

forecasted

expectations

for

macroeconomic

variables,

such

unemployment

rates,

interest

rates,

and

market

risk

factors

based

industry

performance and the equity market.

For

construction

loans,

estimates

are

based

on,

among

other

things,

historical

payment

performance

experience,

industry

historical

loss experience,

underlying

type

collateral,

and

relevant

current and

forward-looking

macroeconomic

variables. On

the

other

hand,

LGD

estimates

are

based

historical

charge-off

events

and

recovery

payments,

industry

historical

loss

experience,

specific attributes of the

loans, such as loan-to-value, debt service

coverage ratios, and relevant current

and forecasted macroeconomic

variables, such as unemployment rates, GDP,

interest rates, and real estate price indexes.

For consumer loans,

the Corporation stratifies

the portfolio segment by

the following five classes: (i)

auto loans; (ii) finance

leases;

(iii) credit

cards; (iv)

personal loans;

and (v)

other consumer

loans, such

as open-end

home equity

revolving lines

of credit

and other

types

consumer

credit

lines,

among

others.

determining

the

ACL,

management

considers

consumer

loans

risk

characteristics

including, but not limited to,

credit quality indicators such as

payment performance period, delinquency

and original FICO scores. For

auto loans and finance

leases, PD estimates are based on,

among other things, the historical

payment performance and relevant

current

and forward-looking macroeconomic

variables, such as regional

unemployment rates. On the

other hand, LGD estimates

are primarily

based

historical

charge-off

events

and

recovery

payments.

For

the

credit

card

and

personal

loan

portfolios,

the

Corporation

determines

the ACL

on a

pool basis,

based on

products

PDs and

LGDs developed

considering

historical

losses for

each origination

vintage by

length of

loan terms,

by geography,

payment performance

and by

credit score.

The PD

and LGD

for each cohort

consider

key macroeconomic variables, such as regional GDP,

unemployment rates, and retail sales, among others.

For the

ACL determination

of all

portfolios, the

expectations for

relevant macroeconomic

variables related

to the

Puerto Rico

and

Virgin

Islands

region consider

an initial

reasonable

and

supportable

period of

two years

and

reversion

period

of up

three years

utilizing a

straight-line approach

and reverting

back to

the historical

macroeconomic

mean. For

the Florida

region, the

methodology

considers

reasonable

and

supportable

forecast

period

and

implicit

reversion

towards

the

historical

trend

that

varies

for

each

macroeconomic variable.

After the reversion

period, a

historical loss

forecast period

covering the

remaining contractual

life, adjusted

for prepayments,

is used

based on

the changes

in key

historical economic

variables during

representative historical

expansionary and

recessionary periods.

Furthermore, the

Corporation periodically

considers the

need for

qualitative adjustments

to the

ACL. Qualitative

adjustments may

be related

to and include,

but not be

limited to factors

such as: (i)

management’s

assessment of

economic forecasts used

in the

model

and how

those forecasts

align with

management’s

overall evaluation

of current

and expected

economic conditions,

including, but

not

limited to, expectations

about interest rate,

inflation, and

real estate price

levels, as well

as labor

challenges; (ii)

organization specific

risks such

as credit

concentrations,

collateral

specific risks,

nature

and

size of

the portfolio

and

external

factors that

may

ultimately

impact credit quality,

and (iii) other

limitations associated with

factors such as

changes in underwriting

and loan resolution

strategies,

among others.

In addition

to loans previously

written down

to their respective

realizable values,

the ACL on

loans that have

been modified or

are

reasonably

expected

modified

TDR

and

that

have

balances

0.5

million

the

case

commercial

and

construction

loans

(other

than

commercial

mortgage

and

construction

loans,

which

the

ACL

based

the

fair

value

the

collateral

the

reporting

date,

adjusted

for

undiscounted

estimated

costs

sell)

generally

measured

using

risk-adjusted

discounted cash flow

method. Under this

approach, all future

cash flows (interest

and principal) for

each loan are

adjusted by the

PDs

and LGDs derived from the term

structure curves and prepayments and

then discounted at the rate of the

loan prior to the restructuring

(or at the

effective interest

rate as of the

reporting date for

non-TDRs previously written

down to their

respective realizable values)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

130

arrive

the

net

present

value

future

cash

flows.

For

credit

cards,

personal

loans,

and

nonaccrual

auto

loans

and

finance

leases

modified in a TDR, the ACL is measured using the same methodologies as those used

for all other loans in those portfolios.

See Note 5 –

Allowance for Credit Losses

for Loans and Finance

Leases for additional

information about reserve

balances for each

portfolio

segment,

activity

during

the

period,

and

information

about

changes

circumstances

that

caused

changes

the

ACL

for

loans and finance leases during the year ended December 31, 2022,

2021, and 2020.

Refer

ASU

2022-02

discussion

below

for

information

the

amendments

the

TDR

guidance

that

are

effective

after

January 1, 2023.

Allowance for credit losses on off-balance sheet credit exposures and

other assets

The Corporation estimates expected

credit losses over the contractual period

in which the Corporation is exposed

to credit risk via a

contractual

obligation

extend

credit

unless

the

obligation

unconditionally

cancellable

the

Corporation.

The

ACL

off-

balance sheet

credit exposures is

adjusted as a

provision for credit

loss expense. The

estimate includes consideration

of the likelihood

that funding

will occur and

an estimate of

expected credit

losses on commitments

expected to be

funded over its

estimated life.

As of

December 31,

2022, the

off-balance sheet

credit exposures

primarily consisted

of unfunded

loan commitments

and standby

letters of

credit

for

commercial

and

construction

loans.

The

Corporation

utilized

the

PDs

and

LGDs

derived

from

the

above-explained

methodologies

for

the

commercial

and

construction

loan

portfolios.

Under

this

approach,

all

future

period

losses

for

each

loan

are

calculated using

the PD

and LGD

loss rates

derived from

the term

structure curves

applied to

the usage

given default

exposure. The

ACL on off-balance sheet

credit exposures is included as

part of accounts payable and

other liabilities in the consolidated

statement of

financial condition with adjustments included as part of the provision

for credit losses in the consolidated statements of income.

See

Note

–

Allowance

for

Credit

Losses

for

Loans

and

Finance

Leases

for

additional

information

about

reserve

balances

for

unfunded

loan commitments,

activity during

the period,

and information

about changes

in circumstances

that caused

changes in

the

ACL for off-balance sheet credit exposures

during the years ended December 31, 2022, 2021 and 2020.

The

Corporation

also

estimates

expected

credit

losses

for

certain

accounts

receivable,

primarily

claims

from

government-

guaranteed

loans,

loan

servicing-related

receivables,

and

other

receivables.

The

ACL

on other

assets

measured

amortized

cost

included

as part

of other

assets in

the

consolidated

statement of

financial

condition

with adjustments

included

as part

of other

non-

interest expenses

in the consolidated

statements of income.

As of December

31, 2022 and

2021, the

ACL on other

assets measured at

amortized cost was immaterial.

Loans held for sale

Loans

that the

Corporation

intends to

sell or

that

the Corporation

does not

have

the ability

and

intent to

hold

for the

foreseeable

future

are

classified

held-for-sale

loans.

Loans

held

for

sale

are

recorded

the

lower

cost

fair

value

less

costs

sell.

Generally,

the

loans

held-for-sale

portfolio

consists

conforming

residential

mortgage

loans

that

will

pooled

into

Government

National Mortgage Association (“GNMA”)

MBS, which are then sold to

investors, and conforming residential mortgage

loans that the

Corporation intends

to sell to

GSEs, such as

the Federal National

Mortgage Association

(“FNMA”) and the

U.S. Federal

Home Loan

Mortgage Corporation (“FHLMC”).

Generally,

residential mortgage

loans held for sale

are valued on

an aggregate portfolio

basis and

the

value

primarily

derived

from

quotations

based

the

MBS

market.

The

amount

which

cost

exceeds

market

value

the

aggregate portfolio

of residential

mortgage loans

held for

sale, if

any,

is accounted

for as

a valuation

allowance with

changes therein

included

the

determination

net

income

and

reported

part

mortgage

banking

activities

the

consolidated

statements

income.

Loan

costs

and

fees

are

deferred

origination

and

are

recognized

income

the

time

sale

and

are

included

the

amortized cost basis when

evaluating the need for

a valuation allowance. The fair

value of commercial and construction

loans held for

sale, if any,

is primarily derived

from external appraisals,

or broker price

opinions that the

Corporation considers,

with changes in

the

valuation allowance reported as part of other non-interest income

in the consolidated statements of income.

In certain circumstances,

the Corporation transfers

loans from/to held

for sale or held

for investment based

on a change in

strategy.

If such a

change in holding

strategy is made, significant

adjustments to the loans’

carrying values may

be necessary.

Reclassifications

of loans held

for investment to held

for sale are made

at the amortized

cost on the date

of transfer and

establish a new cost

basis upon

transfer.

Write-downs of

loans transferred from

held for investment

to held for

sale are recorded

as charge-offs at

the time of

transfer.

Any

previously

recorded

ACL

reversed

earnings

after

applying

the

write-down

policy.

Subsequent

changes

value

below

amortized cost are reflected in

non-interest income in the consolidated

statements of income. Reclassifications of

loans held for sale to

held for investment are

made at the amortized

cost on the transfer

date and any previously

recorded valuation allowance

is reversed in

earnings. Upon transfer to held for investment, the Corporation calculates

an ACL using the CECL impairment model.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

131

Transfers and servicing of financial assets and extinguishment

of liabilities

After a transfer of

financial assets in a

transaction that qualifies

for accounting as

a sale, the Corporation

derecognizes the financial

assets when it has surrendered control and derecognizes liabilities when they

are extinguished.

A transfer of financial

assets in which the

Corporation surrenders control

over the assets is

accounted for as

a sale to the extent

that

consideration other

than beneficial

interests is

received in

exchange.

The criteria

that must

be met

to determine

that the

control over

transferred

assets has

been surrendered

include

the following:

(i) the assets

must be

isolated from

creditors of

the transferor;

(ii) the

transferee

must

obtain

the

right

(free

conditions

that

constrain

from

taking

advantage

that

right)

pledge

exchange

the

transferred

assets;

and

(iii) the

transferor

cannot

maintain

effective

control

over

the

transferred

assets

through

agreement

repurchase

them

before

their maturity.

When

the

Corporation

transfers

financial

assets

and

the

transfer

fails

any

one

the

above

criteria,

the

Corporation

prevented

from

derecognizing

the

transferred

financial

assets

and

the

transaction

accounted

for

secured borrowing.

Servicing assets

The Corporation recognizes

as separate assets the

rights to service

loans for others,

whether those servicing

assets are originated

purchased. In the ordinary course of business, loans are

pooled into GNMA MBS for sale in the secondary

market or sold to FNMA or

FHLMC, with servicing retained.

When the Corporation sells mortgage loans, it recognizes any retained servicing right.

Mortgage

servicing

rights

(“servicing

assets”

“MSRs”)

retained

sale

securitization

arise

from

contractual

agreements

between

the

Corporation

and

investors

mortgage

securities and

mortgage

loans. Under

these

contracts,

the

Corporation

performs

loan-servicing functions

in exchange

for fees and

other remuneration.

The MSRs, included

as part of

other assets in

the statements of

financial condition,

entitle the Corporation

to servicing fees

based on

the outstanding

principal balance of

the mortgage loans

and the

contractual

servicing

rate.

The

servicing

fees

are

credited

income

monthly

basis

when

collected

and

recorded

part

mortgage

banking

activities

the

consolidated

statements

income.

addition,

the

Corporation

generally

receives

other

remuneration

consisting

mortgagor-contracted

fees

such

late

charges

and

prepayment

penalties,

which

are

credited

income

when collected.

Considerable judgment is required

to determine the fair value of

the Corporation’s

MSRs. Unlike highly liquid investments,

the fair

value

MSRs

cannot

readily

determined

because

these

assets

are

not

actively

traded

securities

markets.

The

initial

carrying

value

MSR is

determined

based

its fair

value.

The Corporation

determines

the

fair

value

the

MSRs using

discounted

static cash

flow analysis,

which incorporates

current market

assumptions commonly

used by

buyers of

these MSRs

and was

derived

from

prevailing

conditions

the

secondary

servicing

market.

The

valuation

the

Corporation’s

MSRs

incorporates

two

sets

assumptions: (i) market-derived

assumptions for discount

rates, servicing costs,

escrow earnings rates,

floating earnings rates,

and the

cost

funds;

and

(ii) market

assumptions

calibrated

the

Corporation’s

loan

characteristics

and

portfolio

behavior

for

escrow

balances, delinquencies and foreclosures, late fees, prepayments, and prepayment

penalties.

Once

recorded,

the

Corporation

periodically

evaluates

MSRs

for

impairment.

Impairments

are

recognized

through

valuation

allowance for

each individual

stratum of

servicing assets.

For purposes

of performing

the MSR

impairment evaluation,

the servicing

portfolio

stratified

the

basis

certain

risk

characteristics,

such

region,

terms,

and

coupons.

The

Corporation

conducts

other-than-temporary

impairment analysis

to evaluate

whether a

loss in

the value

of the

MSR in

a particular

stratum, if

any,

is other

than temporary or not.

When the recovery of the

value is unlikely in the

foreseeable future, a write-down

of the MSR in the

stratum to

its

estimated

recoverable

value

charged

the

valuation

allowance.

Impairment

charges

are

recorded

part

revenues

from

mortgage banking activities in the consolidated statements of income

The

MSRs

are

amortized

over

the

estimated

life

the

underlying

loans

based

income

forecast

method

reduction

servicing income.

The income forecast

method of amortization

is based on

projected cash flows.

A particular periodic

amortization is

calculated

applying

the

carrying

amount

the

MSRs

the

ratio

the

cash

flows

projected

for

the

current

period

total

remaining net MSR forecasted cash flow.

Premises and equipment

Premises

and

equipment

are

carried

cost,

net

accumulated

depreciation

and

amortization.

Depreciation

provided

the

straight-line method

over the

estimated useful

life of

each type

of asset.

Amortization of

leasehold improvements

is computed

over

the terms

of the

leases (

i.e.

, the

contractual term

plus lease

renewals that

are reasonably

assured) or

the estimated

useful lives

of the

improvements, whichever

is shorter.

Costs of

maintenance and

repairs that

do not

improve or

extend the

life of

the respective

assets

are expensed

as incurred.

Costs of

renewals and

betterments are

capitalized. When

the Corporation

sells or

disposes of

assets, their

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

132

cost and related

accumulated depreciation

are removed from

the accounts and

any gain or

loss is reflected

in earnings as

part of other

non-interest

income

the

consolidated

statements

income.

When

the

asset

longer

used

operations,

and

the Corporation

intends to

sell it,

the asset

is reclassified

to other

assets held

for sale

and is

reported at

the lower

of the

carrying amount

or fair

value

less cost to

sell. Premises

and equipment

are evaluated

for impairment

whenever events

or changes

in circumstances

indicate that

the

carrying amount

of the

asset may

not be

recoverable. Impairments

on premises

and equipment

are included

as part of

occupancy and

equipment expenses in the consolidated statements of income.

Operating leases

The Corporation,

as lessee,

determines

if an

arrangement

is a

lease or

contains a

lease at

inception.

Operating lease

liabilities are

recognized

based

the

present

value

the

remaining

lease

payments,

discounted

using

the

discount

rate

for

the

lease

the

commencement

date,

acquisition

date

case

business

combination.

the

rates

implicit

the

Corporation’s

operating

leases are

not readily

determinable,

the Corporation

generally uses

an incremental

borrowing

rate based

on information

available

the commencement

date to

determine the

present value

of future

lease payments.

The incremental

borrowing rate

is calculated

based

on fully

amortizing secured

borrowings. Operating

right-of-use (“ROU”)

assets are

generally recognized

based on

the amount

of the

initial measurement of the

lease liability. Non-lease

components, such as common

area maintenance charges,

are not considered a

part

of the

gross-up of

the ROU

asset and

lease liability

and are

recognized as

incurred. The

Corporation’s

leases are

primarily related

operating leases

for the

Bank’s

branches. Most

of the

Corporation’s

leases with

operating ROU

assets have

terms of

two years

years

, some

of which

include options

to extend

the leases

for up

ten years

The Corporation

does not

recognize ROU

assets and

lease

liabilities

that

arise

from

short-term

leases

(less

than

months).

Operating

lease

expense,

which

included

part

occupancy and equipment expenses

in the consolidated statements

of income,

is recognized on a straight-line

basis over the lease term

that is based

on the

Corporation’s

assessment of

whether the

renewal options

are reasonably

certain to be

exercised. The

Corporation

includes

the

ROU

assets

and

lease

liabilities

part

other

assets

and

accounts

payable

and

other

liabilities,

respectively,

the

consolidated statements

of financial condition.

As of December 31, 2022, the Corporation, as lessee, did

t have any leases that qualified as finance leases.

Other real estate owned (“OREO”)

OREO,

which

consists

real estate

acquired

settlement of

loans,

is recorded

at fair

value

less estimated

costs to

sell the

real

estate acquired.

Generally,

loans have

been

written down

to their

net realizable

value

prior

foreclosure.

Any further

reduction

their net

realizable

value

is recorded

with a

charge

to the

ACL at

the

time of

foreclosure

or within

six months.

Thereafter,

costs of

maintaining

and

operating

these

properties,

losses

recognized

the

periodic

reevaluations

these

properties,

and

gains

losses

resulting

from

the

sale of

these

properties

are

charged

credited

earnings

and

are

included

as part

net

gain

(loss) on

OREO

operations in the consolidated statements of income. Appraisals are obtained

periodically, generally

on an annual basis

Claims arising from FHA/VA

government-guaranteed residential mortgage loans

Upon

the

foreclosure

property

collateralizing

FHA/VA

government-guaranteed

residential

mortgage

loan,

the

Corporation

derecognizes

the

government-guaranteed

mortgage

loan

and

recognizes

receivable

part

other

assets

the

consolidated

statements

condition

the

conditions

ASC

Subtopic

310-40,

“Reclassification

Residential

Real

Estate

Collateralized

Consumer

Mortgage

Loans

upon

Foreclosure,”

(ASC

Subtopic

310-40)

are

met.

See

Note

7–

Other

Real

Estate

Owned

for

information on foreclosures associated to

FHA/VA

government-guaranteed residential mortgage loans

reclassified to other assets as of

December 31, 2022 and 2021.

Goodwill and other intangible assets

Goodwill

–

Goodwill

represents

the

cost

excess

the

fair

value

net

assets

acquired

(including

identifiable

intangibles)

transactions accounted

for as

business combinations.

The Corporation

allocates goodwill

to the

reporting unit(s)

that are

expected to

benefit from

the synergies

of the

business combination.

Once goodwill

has been

assigned to

a reporting

unit, it

no longer

retains its

association with

a particular

acquisition, and

all of

the activities within

a reporting

unit, whether

acquired or

internally generated,

are

available to support

the value of the

goodwill.

The Corporation tests goodwill

for impairment at

least annually and more

frequently if

circumstances exist that indicate a possible reduction

in the fair value of a reporting unit below its carrying

value. If, after assessing all

relevant

events

circumstances,

the

Corporation

concludes

that

more-likely-than-not

that

the

fair

value

reporting

unit

below its

carrying value,

then an

impairment test

is required.

In addition

to the

goodwill recorded

at the

Commercial and

Corporate,

Consumer

Retail,

and

Mortgage

Banking

reporting

units

connection

with

the

acquisition

BSPR

2020,

the

Corporation’s

goodwill

mostly

the

United

States

(Florida)

reporting

unit.

See

Note

9–

Goodwill

and

Other

Intangible

Assets

for

information on the qualitative assessment performed by the Corporation

during the fourth quarter of 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

133

Other

Intangible

Assets

–

The

Corporation’s

other

intangible

assets

primarily

relate

core

deposits.

The

Corporation

amortizes

core deposit intangibles based

on the projected useful

lives of the related deposits,

generally on a straight-line

basis, and reviews these

assets for impairment whenever events

or changes in circumstances indicate that the carrying amount may not

exceed their fair value.

Securities purchased and sold under agreements to repurchase

The

Corporation

accounts

for

securities

purchased

under

resale

agreements

and

securities

sold

under

repurchase

agreements

collateralized financing

transactions. Generally,

the Corporation

records these

agreements at

the amount

at which

the securities

were

purchased or

sold. The

Corporation monitors

the fair

value of

securities purchased

and sold,

and obtains

collateral from,

or returns

to,

the counterparties

when

appropriate.

These financing

transactions

do not

create material

credit risk

given

the collateral

involved

and the related monitoring process.

The Corporation sells and acquires

securities under agreements to repurchase or

resell the same or

similar

securities.

Generally,

similar

securities

are

securities

from

the

same

issuer,

with

identical

form

and

type,

similar

maturity,

identical

contractual

interest rates,

similar assets

as collateral,

and the

same aggregate

unpaid

principal amount.

The counterparty

certain agreements may have the right to repledge the collateral by contract

or custom. The Corporation presents such assets separately

the

consolidated

statements

financial

condition

securities

pledged

with

creditors’

rights

repledge.

Repurchase

and

resale

activities may be

transacted under

legally enforceable

master repurchase

agreements that give

the Corporation, in

the event of

default

the

counterparty,

the

right

liquidate

securities

held

and

offset

receivables

and

payables

with

the

same

counterparty.

The

Corporation offsets repurchase

and resale transactions with the same

counterparty in the consolidated statements

of financial condition

where it has such

a legally enforceable

right under a master

netting agreement,

the intention of setoff

is existent, the transactions

have

the same maturity date, and the amounts are determinable.

From

time

time,

the

Corporation

modifies

repurchase

agreements

take

advantage

prevailing

interest

rates.

Following

applicable

GAAP guidance,

the

Corporation determines

that

the debt

under

the modified

terms

is substantially

different

from

the

original terms,

the modification

must be accounted

for as an

extinguishment of

debt. The

Corporation considers

modified terms

to be

substantially different

if the present

value of

the cash flows

under the

terms of the

new debt instrument

is at least

% different

from

the

present

value

the

remaining

cash

flows

under

the

terms

the

original

instrument.

The

new

debt

instrument

will be

initially

recorded

at fair

value, and

that amount

will be

used

to determine

the debt

extinguishment

gain or

loss to

be recognized

through the

consolidated statements

of income

and the

effective rate

of the

new instrument.

If the

Corporation determines

that the

debt under

the

modified

terms is

not

substantially

different,

then

the

new effective

interest

rate

is determined

based on

the

carrying amount

the

original

debt

instrument.

The

Corporation

has

determined

that

none

the

repurchase

agreements

modified

the

past

were

substantially different from the original terms, and,

therefore, these modifications were not accounted for as extinguishments of debt

Income taxes

The Corporation

uses the

asset and

liability method

for the

recognition of

deferred tax

assets and liabilities

for the

expected future

tax consequences

of events

that have

been recognized

in the

Corporation’s

financial statements

or tax

returns.

Deferred income

tax

assets

and

liabilities

are

determined

for

differences

between

the

financial

statement

and

tax

bases

assets

and

liabilities

that

will

result in taxable

or deductible amounts

in the future.

The computation is

based on enacted

tax laws and

rates applicable to

periods in

which the temporary

differences are expected

to be recovered or

settled. The effect

on deferred tax assets and

liabilities of a change

tax rates

is recognized

in income

at the

time of

enactment of

such change

in tax

rates. Any

interest or

penalties due

for payment

income taxes are included

in the provision for income

taxes. Valuation

allowances are established, when

necessary, to

reduce deferred

tax assets to the

amount that is more

likely than not to

be realized. In making

such assessment, significant

weight is given to

evidence

that can

be objectively

verified, including

both positive

and negative

evidence. The

authoritative guidance

for accounting

for income

taxes requires the consideration of all sources of taxable income

available to realize the deferred tax asset, including the future

reversal

existing

temporary

differences,

tax

planning

strategies

and

future

taxable

income,

exclusive

the

impact

the

reversal

temporary differences and

carryforwards. In estimating

taxes, management assesses the

relative merits and risks

of the appropriate tax

treatment

transactions

considering

statutory,

judicial,

and

regulatory

guidance.

See

Note

–

Income

Taxes

for

additional

information.

Under

the authoritative

accounting guidance,

income tax

benefits are

recognized and

measured based

on a

two-step analysis:

i) a

tax

position

must

likely than

not

to be

sustained

based solely

its technical

merits

order

be recognized;

and

ii)

the

benefit

measured

the

largest

dollar

amount

that

position

that

likely

than

not

sustained

upon

settlement.

The

difference between

a benefit not

recognized in

accordance with

this analysis

and the

tax benefit

claimed on

a tax return

is referred

as an Unrecognized Ta

Benefit.

The Corporation releases income tax effects from OCL as pension

and postretirement liabilities are extinguished.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

134

Stock repurchases

Treasury

are

recorded

their

reacquisition

cost,

reduction

stockholders’

equity

the

consolidated

statements

financial condition. When

reissuing treasury shares

for the granting

of stock-based compensation

awards, treasury stock

is reduced by

the

cost

allocated

such

stock

and

additional

paid-in

capital

credited

for

gains

and

debited

for

losses

when

treasury

stock

reissued at prices that differ from the reacquisition cost.

Stock-based compensation

Compensation

cost

recognized

the

financial

statements

for

all

share-based

payment

grants.

The

First

BanCorp.

Omnibus

Incentive

Plan,

amended

(the

“Omnibus

Plan”)

provides

for

equity-based

and

non-equity-based

compensation

incentives

(the

“awards”)

through

the

grant

stock

options,

stock

appreciation

rights,

restricted

stock,

restricted

stock

units,

performance

shares,

other stock-based

awards and

cash-based awards.

The compensation

cost for

an award,

determined

based on

the estimate

of the

fair

value

the

grant

date

(considering

forfeitures

and

any

post-vesting

restrictions),

recognized

over

the

period

during

which

employee

or director

is required

provide

services

exchange

for

award,

which

is the

vesting

period,

taking

into account

the

retirement eligibility of the award.

Stock-based compensation

accounting guidance

requires the

Corporation to

reverse compensation

expense for

any awards

that are

forfeited due

to employee

or director

turnover.

Changes in

the estimated

forfeiture rate

may have

a significant

effect on

stock-based

compensation

the

Corporation

recognizes

the

effect

adjusting

the

rate

for

all

expense

amortization

the

period

which

the

forfeiture estimate is changed. If the actual forfeiture

rate is higher than the estimated forfeiture rate, an

adjustment is made to increase

the

estimated

forfeiture

rate,

which

will

decrease

the

expense

recognized

the

financial

statements.

the

actual

forfeiture

rate

lower

than

the

estimated

forfeiture

rate,

adjustment

made

decrease

the

estimated

forfeiture

rate,

which

will

increase

the

expense recognized in the financial

statements. For additional information regarding

the Corporation’s

equity-based compensation and

awards granted, see Note 16 – Stock-Based Compensation.

Comprehensive (loss) income

Comprehensive (loss)

income for

First BanCorp. includes

net income,

as well as

changes

in unrealized

gains (losses) on

available-

for-sale debt securities and change in unrecognized pension

and post-retirement costs, net of estimated tax effects.

Pension and other postretirement benefits

The Corporation

maintains two

frozen qualified

noncontributory defined

benefit pension

plans (the

“Pension Plans”)

(including a

complementary postretirement

benefits plan covering medical benefits

and life insurance after retirement)

that it assumed in the BSPR

acquisition.

Pension costs are computed

on the basis of

accepted actuarial methods

and are charged

to current operations.

Net pension costs are

based on

various actuarial

assumptions regarding

future experience

under the

plan, which

include costs

for services

rendered during

the

period,

interest

costs

and

return

plan

assets,

well

deferral

and

amortization

certain

items

such

actuarial

gains

losses.

The funding

policy is to

contribute to

the plan,

as necessary,

to provide

for services

to date and

for those expected

to be earned

the future. To

the extent that these

requirements are fully

covered by assets in

the plan, a contribution

may not be made

in a particular

year.

The

cost

postretirement

benefits,

which

is determined

based on

actuarial

assumptions

and

estimates

the

costs of

providing

these benefits in the future, is accrued during the years that the employee renders

the required service.

The

guidance

for

compensation

retirement

benefits

ASC

Topic

715,

“Retirement

Benefits,”

requires

the

recognition

the

funded status

of each

defined pension

benefit plan,

retiree health

care plan

and other

postretirement benefit

plans on

the statement

financial condition.

In addition,

the Corporation

maintains contributory

retirement plans

covering substantially

all employees.

Employer contributions

to the plan are charged

to current earnings as part of

employees’ compensation and benefits expenses

in the consolidated statements of

income.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

135

Segment information

The Corporation reports financial and

descriptive information about its reportable

segments. Operating segments are components

enterprise

about

which

separate

financial

information

is available

that

is evaluated

regularly

by management

deciding

how

allocate resources

and in assessing

performance.

The Corporation’s

management determined

that the segregation

that best fulfills

the

segment definition described above

is by lines of business for its operations

in Puerto Rico, the Corporation’s

principal market, and by

geographic areas for

its operations outside

of Puerto Rico.

As of December

31, 2022, the

Corporation had

the following

six

operating

segments

that

are

all

reportable

segments:

Commercial

and

Corporate

Banking;

Mortgage

Banking;

Consumer

(Retail)

Banking;

Treasury and Investments; United States Operations;

and Virgin

Islands Operations. See Note 27 – Segment Information for additional

information.

Valuation

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

operations.

The Corporation

holds debt

and equity

securities, derivatives,

and other

financial instruments

at fair

value. The

Corporation holds

its

investments and liabilities

mainly to manage liquidity

needs and interest

rate risks. A meaningful

part of the Corporation’s

total assets

is reflected at fair value on the Corporation’s

financial statements.

The FASB’s

authoritative guidance

for fair

value measurement

defines fair

value as

the exchange

price that

would be

received for

an asset or paid to

transfer a liability (an

exit price) in the principal

or most advantageous market

for the asset or liability

in an orderly

transaction between market

participants on the measurement

date.

This guidance also establishes

a fair value hierarchy

for classifying

financial

instruments.

The

hierarchy

based

whether

the

inputs

the

valuation

techniques

used

measure

fair

value

are

observable or unobservable.

Under the

fair value

accounting guidance,

an entity

has the

irrevocable option

to elect,

on a

contract-by-contract

basis, to measure

certain financial assets and

liabilities at fair value

at the inception of

the contract and, thereafter,

to reflect any changes

in fair value in

current earnings.

The Corporation

did not

make any

fair value

option election

as of

December 31,

2022 or

2021. See

Note 25

– Fair

Value

for additional information.

Revenue from contract with customers

See Note

26 –

Revenue from

Contracts with

Customers, for

a detailed

description of

the Corporation’s

policies on

the recognition

and presentation

of revenues from

contracts with customers,

including the

income recognition for

the insurance agency

commissions’

revenue.

Earnings per common share

Basic earnings per share

is calculated by dividing net

income attributable to common stockholders

by the weighted-average number

common

issued

and outstanding.

Net

income

attributable

common

stockholders

represents

net

income

adjusted

for

any

preferred

stock

dividends,

including

any

preferred

stock

dividends

declared

but

not

yet

paid,

and

any

cumulative

preferred

stock

dividends

the

current

dividend

period

that

have

not

been

declared

the

end

the

period.

Basic

weighted-average

common

outstanding

excludes

unvested

restricted

stock

that

not

contain

non-forfeitable

dividend

rights.

The

computation of diluted earnings per share is similar to the computation

of basic earnings per share except that the number of weighted-

average

common

increased

include

the

number

additional

common

that

would

have

been

outstanding

the

dilutive common shares had been issued, referred to as potential common shares.

Potential dilutive

common shares

consist of

unvested shares

of restricted

stock that

do not

contain non-forfeitable

dividend rights,

warrants

outstanding

during

the

period,

and

common

stock

issued

under

the

assumed

exercise

stock

options,

any,

using

the

treasury stock

method.

This method

assumes that

the potential

dilutive common

shares are

issued and

outstanding and

the proceeds

from the exercise, in addition to the amount

of compensation cost attributable to future services, are used

to purchase common stock at

the

exercise

date.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock, stock options, and

warrants outstanding during the

period, if any,

that result in lower potential

dilutive shares issued than

purchased

under

the

treasury

stock

method

are

not

included

the

computation

dilutive

earnings

per

since

their

inclusion

would have

an antidilutive

effect on

earnings per

share. Potential

dilutive common

shares also

include performance

units that

do not

contain non-forfeitable dividend rights if the performance condition

is met as of the end of the reporting period.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

136

Accounting Standards Adopted in 2022

ASU

2022-06,

“Reference

Rate

Reform

(Topic

848):

Deferral

the

Sunset

Date

Topic

848”,

which

was

effective

upon

the

issuance

this

ASU

December

2022,

extends

the

sunset

(or

expiration

date)

ASC

Topic

848

from

December

31,

2022

December

31,

2024.

Notwithstanding,

the

Corporation

expects

the

provisions

the

LIBOR

Act

for

the

transition

any

residual exposure after June 30, 2023.

The Corporation was not impacted by the adoption of the following ASUs during 2022:

●

ASU 2021-05, “Leases (Topic

842): Lessors – Certain Leases with Variable

Lease Payments”

●

ASU

2021-04,

“Earnings

Per

(Topic

260),

Debt

–

Modifications

and

Extinguishments

(Subtopic

470-50),

Compensation

–

Stock

Compensation

(Topic

718),

and

Derivatives

and

Hedging

–

Contracts

Entity’s

Own

Equity

(Subtopic

815-40):

Issuer’s

Accounting

for

Certain

Modifications

Exchanges

Freestanding

Equity-Classified

Written

Call Options (a Consensus of the Emerging Issues Task

Force)”

●

ASU 2020-06, “Debt

– Debt with Conversion

and other Options (Subtopic

470-20) and Derivatives

and Hedging – Contracts

Entity’s

Own

Equity

(Subtopic

815-40):

Accounting

for

Convertible

Instruments

and

Contracts

Entity’s

Own

Equity”

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

137

Recently Issued Accounting Standards Not Yet

Effective or Not Yet

Adopted

Standard

Description

Effective Date

Effect on the financial statements

ASU 2022-03, “Fair Value

Measurement (Topic 820): Fair

Value Measurement of

Equity

Securities Subject to Contractual

Sale Restrictions”

In June 2022, the FASB issued

ASU 2022-03 which, among other

things, clarifies that a contractual

restriction on the sale of an equity

security is not considered part of

the unit of account and, therefore,

is not considered in measuring fair

value; and introduces new

disclosure requirements for equity

securities subject to contractual sale

restrictions.

January 1, 2024. Early adoption is

permitted for both interim and

annual financial statements that

have not yet been issued or made

available for issuance.

The Corporation is evaluating the

impact that this ASU will have on its

financial statements and disclosures.

The Corporation does not expect to

be materially impacted by the

adoption of this ASU during the first

quarter of 2024.

ASU 2022-02, “Financial

Instruments – Credit Losses (Topic

326): Troubled Debt Restructurings

and Vintage Disclosures”

In March 2022, the FASB issued

ASU 2022-02 which eliminates the

TDRs recognition and

measurement guidance. As such,

the requirement to use a discounted

cash flow method for TDRs that

involve a concession that can only

be captured by means of this

method is no longer required and

the consideration of reasonably

expected TDRs is eliminated from

ASC Topic 326. In addition, the

ASU enhances disclosure

requirements for loan restructurings

by creditors made to borrowers

experiencing financial difficulty for

which the terms of the receivables

have been modified, regardless of

whether the refinancing is

accounted for as a new loan, and

amends the guidance on vintage

disclosures to require disclosure of

gross write-offs by year of

origination.

January 1, 2023, unless early

adopted in which case the

amendments should be applied as

of the beginning of the fiscal year

that includes the interim period

The Corporation adopted the

amendments of this update during

the first quarter of 2023 using a

modified retrospective transition

method with respect to the portion of

the standard that relates to the

recognition and measurement of

TDRs (i.e. adjustments to the ACL

that had been calculated using a

discounted cash flow methodology

for loans modified as a TDR prior to

the adoption of these amendments).

As of January 1, 2023, the

Corporation recorded a cumulative

effect adjustment of

million,

after-tax, as a reduction to retained

earnings. In addition, the Corporation

performed the necessary data updates

to comply with the enhanced

disclosure requirements.

ASU 2022-01, “Derivatives and

Hedging (Topic 815): Fair Value

Hedging – Portfolio Layer Method”

In March 2022, the FASB issued

ASU 2022-01 which, among

others, expands the current last-of-

layer method to allow multiple

hedged layers and the scope of the

portfolio layer method to non-

prepayable financial assets.

January 1, 2023, unless early

adopted in which case the

amendments should be applied as

of the beginning of the fiscal year

that includes the interim period

The Corporation does not expect to

be impacted by the amendments of

this update since it does not apply

fair value hedge accounting to any of

its derivatives.

ASU 2021-08, “Business

Combinations (Topic 805):

Accounting for Contract Assets and

Contract Liabilities From Contracts

With Customers”

In October 2021, the FASB issued

ASU 2021-08 which, among

others, requires that the acquirer

recognize and measure contract

assets and contract liabilities

acquired in a business combination

in accordance with Topic 606 and

provides certain practical

expedients.

January 1, 2023, unless early

adopted in which case the

amendments should be applied as

of the beginning of the fiscal year

that includes the interim period

The Corporation will consider these

amendments on business

combinations completed on or after

the adoption date.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

138

NOTE 2 – MONEY MARKET

INVESTMENTS

Money market investments are composed of time deposits,

overnight deposits with other financial institutions,

and other short-term

investments with original maturities of three months or less.

Money market investments as of December 31, 2022 and 2021 were as follows:

2022

2021

(Dollars in thousands)

Time deposits with other financial institutions

(1) (2)

300

Overnight deposits with other financial institutions

(3)

541

1,200

Other short-term investments

(4)

1,184

1,182

2,025

2,682

(1)

Consists of time deposits segregated for compliance with the Puerto

Rico International Banking Law.

(2)

Interest rate of

0.40

% and

0.05

% as of December 31, 2022 and 2021, respectively.

(3)

Weighted-average interest rate

4.33

% and

0.07

% as of December 31, 2022 and 2021, respectively.

(4)

Weighted-average interest rate

0.14

% and

0.15

% as of December 31, 2022 and 2021, respectively.

December

31,

2022,

the

Corporation

had

0.5

million

(2021

1.2

million)

money

market

investments

pledged

collateral as part of margin calls associated to derivative contracts.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

139

NOTE 3 – DEBT SECURITIES

Available-for-Sale

Debt Securities

The amortized

cost, gross

unrealized gains

and losses

recorded in

OCL, ACL,

estimated fair

value,

and weighted-average

yield of

available-for-sale debt securities by contractual maturities as of

December 31, 2022 were as follows:

December 31, 2022

Amortized cost

(1)

Gross

ACL

Fair value

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

7,493

309

7,184

0.22

After 1 to 5 years

141,366

9,675

131,691

0.70

U.S. GSEs' obligations:

Due within one year

129,018

4,036

124,982

0.32

After 1 to 5 years

2,395,273

227,724

2,167,571

0.83

After 5 to 10 years

56,251

7,670

48,594

1.54

After 10 years

12,170

12,206

4.62

Puerto Rico government obligations:

After 10 years

(2)

3,331

755

375

2,201

United States and Puerto Rico government obligations

2,744,902

250,169

375

2,494,429

0.83

MBS:

FHLMC certificates:

After 1 to 5 years

4,235

169

4,066

2.33

After 5 to 10 years

204,085

19,061

185,024

1.55

After 10 years

1,092,289

186,558

905,731

1.38

1,300,609

205,788

1,094,821

1.41

GNMA certificates:

Due within one year

1.73

After 1 to 5 years

15,508

622

14,886

2.00

After 5 to 10 years

45,322

3,809

41,514

1.31

After 10 years

232,632

27,169

205,514

2.47

293,467

31,600

261,919

2.27

FNMA certificates:

After 1 to 5 years

9,685

521

9,164

1.76

After 5 to 10 years

400,223

36,871

363,352

1.70

After 10 years

1,186,635

124

186,757

1,000,002

1.38

1,596,543

124

224,149

1,372,518

1.46

Collateralized mortgage obligations issued or guaranteed

by the FHLMC, FNMA and GNMA ("CMOs"):

After 1 to 5 years

30,578

4,463

26,115

2.43

After 10 years

423,695

80,271

343,424

1.38

454,273

84,734

369,539

1.45

Private label:

After 10 years

7,903

2,026

5,794

6.83

Total MBS

3,652,795

176

548,297

3,104,591

1.52

Other

Due within one year

500

0.84

Total available-for-sale debt securities

6,398,197

247

798,466

458

5,599,520

1.22

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

11.1

million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010. During 2021, the

Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

140

The amortized

cost, gross

unrealized gains

and losses

recorded in

OCL, ACL,

estimated fair

value, and

weighted-average yield

available-for-sale debt securities by contractual maturities as of

December 31, 2021 were as follows:

December 31, 2021

Amortized cost

(1)

Gross

ACL

Fair value

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

After 1 to 5 years

149,660

1,233

148,486

0.68

U.S. GSEs' obligations:

After 1 to 5 years

1,877,181

240

29,555

1,847,866

0.60

After 5 to 10 years

403,785

175

10,856

393,104

0.90

After 10 years

15,788

224

16,012

0.63

Puerto Rico government obligations:

After 10 years

(2)

3,574

416

308

2,850

United States and Puerto Rico government obligations

2,449,988

698

42,060

308

2,408,318

0.67

MBS:

FHLMC certificates:

After 1 to 5 years

2,811

119

2,930

2.65

After 5 to 10 years

193,234

2,419

1,122

194,531

1.29

After 10 years

1,240,964

3,748

23,503

1,221,209

1.18

1,437,009

6,286

24,625

1,418,670

1.20

GNMA certificates:

Due within one year

1.32

After 1 to 5 years

16,714

572

17,286

2.90

After 5 to 10 years

27,271

139

27,212

0.51

After 10 years

338,927

7,091

2,174

343,844

1.45

382,914

7,743

2,313

388,344

1.45

FNMA certificates:

Due within one year

4,975

4,996

2.03

After 1 to 5 years

21,337

424

21,761

2.87

After 5 to 10 years

298,771

4,387

1,917

301,241

1.41

After 10 years

1,389,381

8,953

21,747

1,376,587

1.21

1,714,464

13,785

23,664

1,704,585

1.27

CMOs:

After 1 to 5 years

24,007

778

23,230

1.31

After 5 to 10 years

14,316

14,413

0.76

After 10 years

500,811

290

13,134

487,967

1.23

539,134

388

13,912

525,610

1.22

Private label:

After 10 years

9,994

1,963

797

7,234

2.21

Total MBS

4,083,515

28,202

66,477

797

4,044,443

1.26

Other

Due within one year

500

0.72

After 1 to 5 years

500

0.84

1,000

0.78

Total available-for-sale debt securities

6,534,503

28,900

108,537

1,105

6,453,761

1.03

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

10.1

million as of December 31, 2021 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

141

Maturities

available-for-sale

debt

securities

are

based

the

period

final

contractual

maturity.

Expected

maturities

might

differ

from

contractual

maturities

because

they

may

subject

prepayments

and/or

call

options.

The

weighted-average

yield

available-for-sale

debt

securities

based

amortized

cost

and,

therefore,

does

not

give

effect

changes

fair

value.

The

net

unrealized gain or loss on available-for-sale debt securities is

presented as part of other comprehensive (loss) income.

The

following

tables

show

the

fair

value

and

gross

unrealized

losses

the

Corporation’s

available-for-sale

debt

securities,

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

of December 31, 2022 and 2021. The tables also include debt securities for

which an ACL was recorded.

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

U.S. Treasury and U.S. GSEs'

obligations

298,313

18,057

2,174,724

231,357

2,473,037

249,414

Puerto Rico government obligations

2,201

755

(1)

2,201

755

MBS:

FHLMC

263,184

45,776

831,637

160,012

1,094,821

205,788

GNMA

74,829

3,433

179,854

28,167

254,683

31,600

FNMA

424,178

51,289

938,625

172,860

1,362,803

224,149

CMOs

54,688

6,788

314,851

77,946

369,539

84,734

Private label

5,794

2,026

(1)

5,794

2,026

1,115,192

125,343

4,447,686

673,123

5,562,878

798,466

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2022, PRHFA

bond and private label MBS had an ACL of $

0.4

million and

0.1

million, respectively.

As of December 31, 2021

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

U.S. Treasury and U.S. GSEs'

obligations

1,717,340

25,401

606,179

16,243

2,323,519

41,644

Puerto Rico government obligations

2,850

416

(1)

2,850

416

MBS:

FHLMC

986,345

16,144

221,896

8,481

1,208,241

24,625

GNMA

194,271

1,329

41,233

984

235,504

2,313

FNMA

1,237,701

19,843

112,559

3,821

1,350,260

23,664

CMOs

466,004

13,552

16,656

360

482,660

13,912

Private label

7,234

1,963

(1)

7,234

1,963

4,601,661

76,269

1,008,607

32,268

5,610,268

108,537

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2021, PRHFA

bond and private label MBS had an ACL of $

0.3

million and

0.8

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

142

There

were

sales

available-for-sale

debt

securities

during

the

years

ended

December

31,

2022

and

2021.

During

the

year

ended December

31, 2020, proceeds

from sales of

available-for-sale debt

securities amounted

to $

1.2

billion, including

gross realized

gains of

13.3

million and

gross realized

losses of

0.1

million. The

13.2

million net

gain was

realized on

tax-exempt

securities or

was realized at the

tax-exempt international

banking entity subsidiary,

which had no

effect in the

income tax expense

recorded during

the year ended December 31, 2020.

Assessment for Credit Losses

Debt securities

issued by

U.S. government

agencies,

U.S. GSEs,

and

the U.S.

Treasury,

including

notes and

MBS, accounted

for

substantially all of the total available-for

-sale portfolio as of December 31, 2022, and

the Corporation expects no credit losses on

these

securities,

given

the

explicit

and

implicit

guarantees

provided

the

U.S.

federal

government.

Because

the

decline

fair

value

attributable to

changes in

interest rates, and

not credit

quality,

and because

the Corporation

does not have

the intent to

sell these U.S.

government

and

agencies

debt

securities

and

likely

that

will

not

required

sell

the

securities

before

their

anticipated

recovery,

the

Corporation

does

not

consider

impairments

these

securities

credit

December

31,

2022.

The

Corporation’s

credit loss

assessment was

concentrated mainly

on private

label MBS

and on

Puerto Rico

government debt

securities,

for which credit losses are evaluated on a quarterly basis.

The

Corporation’s

available-for-sale

MBS

portfolio

included

private

label

MBS

with

fair

value

5.8

million,

which

had

unrealized

losses of

approximately $

2.1

million as

of December

31, 2022,

of which

0.1

million is

due to

credit deterioration

and is

part of the ACL.

The interest rate on these private-label MBS is variable, tied to 3-month LIBOR, and limited to the weighted-average

coupon on the underlying collateral.

The underlying collateral is fixed-rate, single-family residential mortgage loans in the United

States with original FICO scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels.

of December 31,

2022, the Corporation

did not have the

intent to sell these

securities and determined

that it is likely

that it will not

required to sell the securities before

anticipated recovery.

The Corporation determined the ACL

for private label MBS based on

a risk-

adjusted

discounted

cash flow

methodology

that considers

the structure

and

terms of

the instruments.

The Corporation

utilized PDs

and

LGDs

that

considered,

among

other

things,

historical

payment

performance,

loan-to-value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables,

such

as regional

unemployment

rates

and

the housing

price

index.

Under

this approach,

expected

cash

flows

(interest

and

principal)

were

discounted

the

Treasury

yield

curve

the

reporting

date.

Significant

assumptions in the valuation of the private label MBS were as follows:

As of

December 31, 2022

December 31, 2021

Weighted

Range

Weighted

Range

Average

Minimum

Maximum

Average

Minimum

Maximum

Discount rate

16.2%

12.9%

Prepayment rate

11.8%

1.5%

15.2%

7.6%

24.9%

Projected Cumulative Loss Rate

5.6%

0.3%

15.6%

7.6%

0.2%

15.7%

The Corporation

evaluates if

a credit

loss exists,

primarily

by monitoring

adverse variances

in the

present value

of expected

cash

flows. As of December 31, 2022, the ACL for these

private label MBS was $

0.1

million, compared to $

0.8

million as of December 31,

2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

143

December

31,

2022,

the

Corporation’s

available-for-sale

debt

securities

portfolio

also

included

residential

pass-through

MBS issued by the PRHFA,

collateralized by certain second mortgages,

with a fair value of $

2.2

million, which had an unrealized loss

of approximately

1.1

million. Approximately

0.4

million of

the unrealized

losses was

due to

credit deterioration

and is

part of

the

ACL. The underlying

second mortgage loans

were originated under

a program launched by

the Puerto Rico government

in 2010. This

residential pass-through MBS

was structured as

a zero-coupon bond

for the first ten

years (up to July 2019).

The underlying source

repayment on this

residential pass-through

MBS are second mortgage

loans in Puerto Rico.

PRHFA, not

the Puerto Rico

government,

provides

guarantee

the

event

default

and

subsequent

foreclosure

the

properties

underlying

the

second

mortgage

loans.

During

2021,

the Corporation

placed

this instrument

nonaccrual

status based

the delinquency

status of

the

underlying

second

mortgage loans collateral.

The Corporation determined

the ACL on this

instrument based on a

discounted cash flow methodology

that

considered the

structure and

terms of

the debt

security.

The Corporation

utilized PDs and

LGDs that

considered, among

other things,

historical payment

performance, loan-to-value

attributes,

and relevant

current and

forward-looking macroeconomic

variables, such

regional

unemployment

rates,

the

housing

price

index,

and

expected

recovery

from

the

PRHFA

guarantee.

Under

this

approach,

expected

cash

flows

(interest

and

principal)

were

discounted

the

Treasury

yield

curve

plus

spread

the

reporting

date

and

compared

the

amortized

cost.

the

event

that

the

second

mortgage

loans

default

and

the

collateral

insufficient

satisfy

the

outstanding

balance

this

residential

pass-through

MBS,

PRHFA’s

ability

honor

its

insurance

will

depend

on,

among

other

factors,

the financial

condition of

PRHFA

at the

time

such obligation

becomes due

and payable.

Further deterioration

of the

Puerto

Rico

economy

fiscal

health

the

PRHFA

could

impact

the

value

these

securities,

resulting

additional

losses

the

Corporation. As

of December

31, 2022,

the Corporation

did not

have the

intent to

sell this

security and

determined that

it was

likely

that it will not be required to sell the security before its anticipated recovery.

The following

tables present

a roll-forward

by major

security type

for the

years ended

December 31,

2022, 2021,

and 2020

of the

ACL on available-for-sale debt securities:

Year

Ended December 31, 2022

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

797

308

1,105

Provision for credit losses - (benefit) expense

(501)

(434)

Net charge-offs

(213)

ACL on available-for-sale debt securities

375

458

Year

Ended December 31, 2021

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

1,002

308

1,310

Provision for credit losses - (benefit)

(136)

Net charge-offs

(69)

ACL on available-for-sale debt securities

797

308

1,105

Year

Ended December 31, 2020

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

Provision for credit losses - expense

1,333

308

1,641

Net charge-offs

(331)

ACL on available-for-sale debt securities

1,002

308

1,310

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

144

During

2022,

the

Corporation

recognized

86.1

million

interest

income

available-for-sale

debt

securities

(2021

62.7

million; 2020 - $

49.0

million), of which $

40.7

million was exempt (2021 - $

25.7

million; 2020 - $

38.5

million). The exempt securities

primarily relate to MBS and

government obligations held by

IBEs (as defined in the

International Banking Entity

Act of Puerto Rico),

whose interest income and sales are exempt from Puerto Rico income

taxation under that act.

Held-to-Maturity Debt Securities

The

amortized

cost,

gross

unrecognized

gains

and

losses,

estimated

fair

value,

ACL,

weighted-average

yield

and

contractual

maturities of held-to-maturity debt securities as of December 31, 2022 and

2021 were as follows

December 31, 2022

Amortized cost

(1)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

1,202

1,187

5.20

After 1 to 5 years

42,530

886

1,076

42,340

656

6.34

After 5 to 10 years

55,956

3,182

360

58,778

3,243

6.29

After 10 years

66,022

1,318

64,704

4,385

7.10

Total Puerto Rico municipal bonds

165,710

4,068

2,769

167,009

8,286

6.62

MBS:

FHLMC certificates:

After 5 to 10 years

21,443

746

20,697

3.03

After 10 years

19,362

888

18,474

4.21

40,805

1,634

39,171

3.59

GNMA certificates:

After 10 years

19,131

943

18,188

3.35

FNMA certificates:

After 1 to 5 years

9,621

396

9,225

3.48

After 10 years

72,347

3,155

69,192

4.14

81,968

3,551

78,417

4.06

CMOs

After 10 years

129,923

5,593

124,330

3.24

Total MBS

271,827

11,721

260,106

3.55

Total held-to-maturity debt securities

437,537

4,068

14,490

427,115

8,286

4.71

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

5.5

million as of December 31, 2022, was reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and is excluded from the estimate of credit losses.

December 31, 2021

Amortized cost

(1)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

2,995

3,000

5.39

After 1 to 5 years

14,785

526

156

15,155

347

2.35

After 5 to 10 years

90,584

1,555

3,139

89,000

3,258

4.25

After 10 years

69,769

9,777

59,992

4,896

4.06

Total held-to-maturity debt securities

178,133

2,086

13,072

167,147

8,571

4.04

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

3.4

million as of December 31, 2021, was reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and is excluded from the estimate of credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

145

During 2022,

the Corporation

purchased

approximately

289.9

million of

GSEs’ MBS,

which

were classified

as held-to-maturity

debt securities.

The following

tables show the

Corporation’s

held-to-maturity debt securities

’

fair value

and gross unrecognized

losses, aggregated

by category and length of time that individual securities had been

in a continuous unrecognized loss position, as of December 31,

2022

and 2021, including debt securities for which an ACL was recorded:

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico municipal bonds

98,797

2,769

98,797

2,769

MBS:

FHLMC certificates

39,171

1,634

39,171

1,634

GNMA certificates

18,188

943

18,188

943

FNMA certificates

78,417

3,551

78,417

3,551

CMOs

124,330

5,593

124,330

5,593

Total held-to-maturity debt securities

260,106

11,721

98,797

2,769

358,903

14,490

As of December 31, 2021

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico municipal bonds

140,732

13,072

140,732

13,072

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

146

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

GSEs and

Puerto

Rico

municipal

bonds.

As of

December

31,

2022,

all of

the

MBS included

the held-to-maturity

debt

securities

portfolio were

issued by

GSEs. The

Corporation does

not recognize

an ACL

for these

securities since

they are

highly rated

by major

rating agencies and have a

long history of no credit losses. In

the case of Puerto Rico

municipal bonds, the Corporation determines

the

ACL based on

the product of

a cumulative PD

and LGD, and

the amortized cost

basis of the

bonds over their

remaining expected life

as described in Note 1 – Nature of Business and Summary of Significant Accounting

Policies.

The Corporation

performs periodic

credit quality

reviews on

these issuers.

All of

the Puerto

Rico municipal

bonds were

current as

scheduled

contractual

payments

December

31,

2022.

The

Puerto

Rico

municipal

bonds

had

ACL

8.3

million

December

31,

2022,

down

0.3

million

from

8.6

million

December

31,

2021,

mostly

reduction

qualitative

reserves driven by improvements in the underlying financial information

of certain issuers during 2022.

The following table

presents the activity

in the ACL for

held-to-maturity debt

securities by major

security type for

the years ended

December 31, 2022, 2021 and 2020:

Puerto Rico Municipal Bonds

Year

Ended

December 31, 2022

December 31, 2021

December 31, 2020

(In thousands)

Beginning Balance

8,571

8,845

Impact of adopting ASC 326

8,134

Initial allowance on PCD debt securities

1,269

Provision for credit losses - (benefit)

(285)

(274)

(558)

ACL on held-to-maturity debt securities

8,286

8,571

8,845

During the second quarter of 2019, the oversight board established

by Puerto Rico Oversight, Management,

and Economic Stability

Act

(“PROMESA”)

announced

the

designation

Puerto

Rico’s

municipalities

covered

instrumentalities

under

PROMESA.

Municipalities

may

affected

the

negative

economic

and

other

effects

resulting

from

expense,

revenue,

cash

management

measures taken by the

Puerto Rico government to address

its fiscal situation, or measures

included in fiscal plans

of other government

entities,

and,

recently,

the

effect

the

COVID-19

pandemic

the

Puerto

Rico

and

global

economy.

Given

the

inherent

uncertainties about the

fiscal situation of

the Puerto Rico

central government, the

COVID-19 pandemic, and

the measures taken,

or to

taken,

other

government

entities

response

economic

and

fiscal

challenges

municipalities,

the

Corporation

cannot

certain whether future charges to the ACL on these securities will be required.

From

time

time,

the

Corporation

has

securities

held

maturity

with

original

maturity

three

months

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

money

market

investments

the

consolidated

statements

financial

condition. As of

December 31,

2022 and

2021, the

Corporation had

outstanding securities

held to

maturity that

were classified

cash and cash equivalents.

During 2022,

the Corporation recognized

15.5

million of interest

income on

held-to-maturity debt

securities (2021

- $

8.8

million;

2020 -

7.6

million), of

which $

15.4

million was

exempt (2021

- $

8.8

million; 2020

- $

7.6

million). The

exempt securities

primarily

relate to

MBS held

by IBEs

(as defined

in the

International Banking

Entity Act

of Puerto

Rico), whose

interest income

and sales

are

exempt from Puerto Rico income taxation under that act; and tax-exempt Puerto

Rico municipal bonds.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

147

Credit Quality Indicators:

The held-to-maturity debt securities

portfolio consisted of GSEs

’

MBS and financing arrangements

with Puerto Rico municipalities

issued in

bond form.

As previously

mentioned,

the Corporation

expects

no credit

losses on

GSEs MBS.

The Puerto

Rico municipal

bonds

are

accounted

for

securities

but

are

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

Accordingly, the

Corporation monitors the credit quality of these municipal bonds through the use of

internal credit-risk ratings, which

are generally updated

on a quarterly basis.

The Corporation considers

a municipal bond

as a criticized asset

if its risk rating

is Special

Mention,

Substandard,

Doubtful,

Loss.

Puerto

Rico

municipal

bonds

that

not

meet

the

criteria

for

classification

criticized

assets are considered to be pass-rated securities. The asset categories are defined

below:

Pass –

Assets classified

as pass

have

a well-defined

primary source

of repayment,

with no

apparent risk,

strong financial

position,

minimal operating

risk, profitability,

liquidity and

strong capitalization

and include

assets categorized

as watch.

Assets classified

watch have

acceptable business

credit, but

borrowers

’

operations, cash

flow or

financial condition

evidence more

than average

risk

and requires additional level of supervision and attention from loan officers.

Special Mention

– Special

Mention assets

have potential

weaknesses that

deserve management’s

close attention.

If left uncorrected,

these potential weaknesses

may result in deterioration

of the repayment prospects

for the asset or

in the Corporation’s

credit position

some

future

date.

Special

Mention

assets

are

not

adversely

classified

and

not

expose

the

Corporation

sufficient

risk

warrant adverse classification.

Substandard – Substandard

assets are inadequately

protected by the

current sound worth

and paying capacity

of the obligor

or of the

collateral pledged, if any.

Assets so classified must have a well-defined weakness or weaknesses that jeopardize

the liquidation of the

debt. They are characterized by the distinct possibility that the institution will sustain some

loss if the deficiencies are not corrected.

Doubtful

–

Doubtful

classifications

have

all

the

weaknesses

inherent

those

classified

Substandard

with

the

added

characteristic

that

the

weaknesses

make

collection

liquidation

full

highly

questionable

and

improbable,

based

currently

known

facts,

conditions and values.

A Doubtful classification

may be appropriate

in cases where significant

risk exposures are

perceived, but loss

cannot be determined because of specific reasonable pending factors,

which may strengthen the credit in the near term.

Loss –

Assets classified

as Loss

are considered

uncollectible and

of such

little value

that their continuance

as bankable

assets is not

warranted.

This

classification

does

not

mean

that

the

asset

has

absolutely

recovery

salvage

value,

but

rather

that

not

practical or desirable to defer writing

off this asset even though partial

recovery may occur in the future. There

is little or no prospect

for near term improvement and no realistic strengthening action of

significance pending.

The

Corporation

periodically

reviews

its Puerto

Rico

municipal

bonds

evaluate

they are

properly

classified,

and to

measure

credit losses on

these securities. The

frequency of these

reviews will depend

on the amount

of the aggregate

outstanding debt, and

the

risk rating classification of the obligor.

The

Corporation

has

Loan

Review

Group

that

reports

directly

the

Corporation’s

Risk

Management

Committee

and

administratively

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities.

The objective

these

loan

reviews is

assess accuracy

of the

Bank’s

determination

and

maintenance

loan

risk

rating

and

its

adherence

lending

policies,

practices

and

procedures.

The

monitoring

performed

this

group

contributes

the

assessment

compliance

with

credit

policies

and

underwriting

standards,

the

determination

the

current

level

credit

risk,

the

evaluation of

the effectiveness

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

a sound credit process. The Loan Review Group reports the results of the credit

process reviews to the Risk Management Committee.

As of December 31, 2022 and 2021,

all Puerto Rico municipal bonds classified as held-to-maturity were classified

as Pass.

held-to-maturity debt

securities were

on nonaccrual

status, 90

days past

due and

still accruing,

or past

due as

of December

31,

2022 and 2021. A security is considered to be past due once it is 30 days contractually

past due under the terms of the agreement.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

148

NOTE 4 – LOANS HELD FOR INVESTMENT

The

following

table

provides

information

about

the

loan

portfolio

held

for

investment

portfolio

segment

and

disaggregated

geographic locations

as of the indicated

dates:

As of December 31,

2022

2021

(In thousands)

Puerto Rico and Virgin Islands region:

Residential mortgage loans, mainly secured by first mortgages

2,417,900

2,549,573

Construction loans

34,772

43,133

Commercial mortgage loans

1,834,204

1,702,231

C&I loans

1,860,109

1,946,597

Consumer loans

3,317,489

2,872,384

Loans held for investment

9,464,474

9,113,918

Florida region:

Residential mortgage loans, mainly secured by first mortgages

429,390

429,322

Construction loans

98,181

95,866

Commercial mortgage loans

524,647

465,238

C&I loans

1,026,154

940,654

Consumer loans

9,979

15,660

Loans held for investment

2,088,351

1,946,740

Total:

Residential mortgage loans, mainly secured by first mortgages

2,847,290

2,978,895

Construction loans

132,953

138,999

Commercial mortgage loans

2,358,851

2,167,469

C&I loans

(1)

2,886,263

2,887,251

Consumer loans

3,327,468

2,888,044

Loans held for investment

(2)

11,552,825

11,060,658

ACL on loans and finance leases

(260,464)

(269,030)

Loans held for investment, net

11,292,361

10,791,628

(1)

As of December 31, 2022 and 2021, includes $

838.5

million and $

952.1

million, respectively, of commercial loans that were secured by real estate and the

primary

source of repayment at origination was not dependent upon the

real estate.

(2)

Includes accretable fair value net purchase discounts of $

29.3

million and $

35.3

million as of December 31, 2022 and 2021, respectively.

As of

December 31,

2022,

and

2021,

the

Corporation

had net

deferred

origination

costs on

its loan

portfolio

amounting

to $

11.2

million

and

4.3

million,

respectively.

The total

loan

portfolio

is net

of unearned

income

of $

103.4

million

and

79.0

million

as of

December 31, 2022 and

2021, respectively,

of which $

99.2

million and $

75.8

million are related

to finance leases

as of December

31,

2022 and 2021, respectively.

As of

December 31,

2022,

the Corporation

was servicing

residential

mortgage

loans owned

by others

aggregate

amount

3.9

billion (2021

— $

4.0

billion), and

commercial loan

participations owned

by others

in an

aggregate amount

of $

305.1

million as

of December 31, 2022 (2021 — $

383.5

million).

Various

loans, mainly secured

by first mortgages,

were assigned

as collateral for

time deposits accounts,

public funds, borrowings,

and

unused

commitments.

Total

loans

carrying

value

pledged

collateral

amounted

4.3

billion

and

4.1

billion

December 31,

2022

and

2021,

respectively.

December

31,

2022,

loans

pledged

collateral

include

2.2

billion

pledged

collateral related

to the

Borrower-in-Custody

Program (the

“BIC Program”)

of the

FED which

remained undrawn

and $

1.8

billion of

loans pledged to the FHLB, compared to $

2.1

billion and $

1.8

billion, respectively, as of

December 31, 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

149

The Corporation’s

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL

portfolio classes as of December 31, 2022 and 2021 are as follows:

As of December 31, 2022

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

Nonaccrual

(4) (5)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(6)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (7)

67,116

2,586

48,456

118,158

Conventional residential mortgage loans

(2) (7)

2,643,909

25,630

16,821

42,772

2,729,132

2,292

Commercial loans:

Construction loans

130,617

128

2,208

132,953

977

Commercial mortgage loans

(2) (7)

2,330,094

300

2,367

3,771

22,319

2,358,851

15,991

C&I loans

2,868,989

1,984

1,128

6,332

7,830

2,886,263

3,300

Consumer loans:

Auto loans

1,740,271

40,039

7,089

10,672

1,798,071

2,136

Finance leases

707,646

7,148

1,791

1,645

718,230

330

Personal loans

346,366

3,738

1,894

1,248

353,246

Credit cards

301,013

3,705

2,238

4,775

311,731

Other consumer loans

141,687

1,804

1,458

1,241

146,190

Total loans held for investment

11,277,708

58,718

46,181

80,283

89,935

11,552,825

25,026

(1)

It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to

nonaccrual loans. The Corporation continues

accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $

28.2

million of residential mortgage

loans guaranteed by the FHA that were over 15 months delinquent.

(2)

Includes PCD loans previously accounted for under 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 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, amounting to $

12.0

million as of December 31, 2022 ($

11.0

million conventional

residential mortgage loans and $

1.0

million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

10.3

million as of December 31, 2022. 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, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.3

million as of December 31, 2022, primarily nonaccrual residential mortgage loans.

(5)

Nonaccrual loans exclude $

328.1

million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2022.

(6)

Includes $

0.3

million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.

(7)

According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required

by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2022 amounted to $

6.1

million, $

65.2

million, and $

1.6

million,

respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

150

As of December 31, 2021

Days Past Due and Accruing

Current

30-59

60-89

90+

(1)(2)(3)

Nonaccrual

(4) (5)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(6)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (7)

57,522

2,355

65,515

125,392

Conventional residential mortgage loans

(2) (7)

2,738,111

31,832

28,433

55,127

2,853,503

3,689

Commercial loans:

Construction loans

136,317

2,664

138,999

1,000

Commercial mortgage loans

(2) (7)

2,129,375

2,402

436

9,919

25,337

2,167,469

8,289

C&I loans

2,858,397

2,047

1,845

7,827

17,135

2,887,251

11,393

Consumer loans:

Auto loans

1,533,445

26,462

4,949

6,684

1,571,540

3,146

Finance leases

568,606

4,820

713

866

575,005

196

Personal loans

310,390

3,299

1,285

1,208

316,182

Credit cards

282,179

3,158

1,904

2,985

290,226

Other consumer loans

130,588

1,996

811

1,696

135,091

Total loans held for investment

10,744,930

44,202

46,130

114,679

110,717

11,060,658

27,733

(1)

It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to

nonaccrual loans. The Corporation continues

accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $

46.6

million of residential mortgage loans

guaranteed by the FHA that were over 15 months delinquent.

(2)

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, amounting to $

20.6

million as of December 31, 2021 ($

19.1

million conventional

residential mortgage loans and $

1.5

million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

7.2

million as of December 31, 2021. 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, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.2

million as of December 31, 2021, primarily nonaccrual residential mortgage loans.

(5)

Nonaccrual loans exclude $

363.4

million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2021.

(6)

Includes $

0.5

million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2021.

(7)

According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required

by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2021 amounted to $

6.1

million, $

66.0

million, and $

0.7

million,

respectively.

When a

loan

is placed

on nonaccrual

status, any

accrued but

uncollected

interest income

is reversed

and

charged

against interest

income

and the

amortization of

any net

deferred fees

is suspended.

The amount

of accrued

interest reversed

against interest

income

totaled $

1.7

million, $

2.0

million and $

1.9

million for the years ended December

31, 2022, 2021, and 2020, respectively.

For the years

ended December

31, 2022,

2021, and

2020, the

cash interest

income recognized

on nonaccrual

loans amounted

to $

1.5

million, $

2.3

million, and $

2.0

million, respectively.

As of

December 31,

2022, the

recorded investment

on residential

mortgage loans

collateralized by

residential real

estate property

that

were

the

process

foreclosure

amounted

72.4

million,

including

29.4

million

FHA/VA

government-guaranteed

mortgage

loans,

and

10.0

million

PCD

loans

acquired

prior

the

adoption,

January

2020,

CECL.

The

Corporation

commences

the

foreclosure

process

residential

real

estate

loans

when

borrower

becomes

120

days

delinquent.

Foreclosure

procedures

and

timelines

vary

depending

whether

the

property

located

judicial

non-judicial

state.

Occasionally,

foreclosures may be delayed due to, among other reasons, mandatory

mediations, bankruptcy,

court delays, and title issues.

Credit Quality Indicators:

The Corporation

categorizes loans

into risk

categories based

on relevant

information

about the

ability of

the borrowers

to service

their debt

such as

current financial

information, historical

payment experience,

credit documentation,

public information,

and current

economic

trends,

among

other

factors.

The

Corporation

analyzes

non-homogeneous

loans,

such

as commercial

mortgage,

C&I,

and

construction

loans

individually

classify

the

loans’

credit

risk.

mentioned

above,

the

Corporation

periodically

reviews

its

commercial

and

construction

loans

evaluate

they

are

properly

classified.

The

frequency

these

reviews

will

depend

the

amount of

the aggregate

outstanding debt,

and the

risk rating

classification of

the obligor.

In addition,

during the

renewal and

annual

review process of

applicable credit facilities, the

Corporation evaluates the

corresponding loan grades.

The Corporation uses the

same

definition

for

risk

ratings

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities,

discussed in Note 3 – Debt Securities.

For residential mortgage and consumer loans, the Corporation also evaluates credit

quality based on its interest accrual status.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

151

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and by

origination

year

based

the

internal

credit-risk

category

December

31,

2022

and

the

amortized

cost

commercial

and

construction loans by portfolio classes based on the internal credit-risk

category as of December 31, 2021 was as follows:

As of December 31,

2022

Puerto Rico and Virgin Islands region

Term Loans

As of December 31, 2021

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

9,463

18,385

4,031

31,879

38,066

Criticized:

Special Mention

765

Substandard

2,893

4,302

Doubtful

Loss

Total construction loans

9,463

18,385

6,924

34,772

43,133

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

391,589

141,456

363,115

296,954

193,795

267,793

1,026

1,655,728

1,395,569

Criticized:

Special Mention

1,198

3,583

6,919

12,042

121,673

145,415

259,263

Substandard

135

2,819

30,107

33,061

47,399

Doubtful

Loss

Total commercial mortgage loans

392,922

141,456

366,698

306,692

205,837

419,573

1,026

1,834,204

1,702,231

C&I

Risk Ratings:

Pass

297,932

195,460

184,856

315,987

88,484

179,201

527,652

1,789,572

1,852,552

Criticized:

Special Mention

138

912

500

9,867

2,631

29,176

43,224

32,650

Substandard

203

351

1,324

14,119

725

10,238

353

27,313

61,395

Doubtful

Loss

Total C&I loans

298,273

196,723

186,180

330,606

99,076

192,070

557,181

1,860,109

1,946,597

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

152

As of December 31,

2022

Term Loans

As of December 31, 2021

Florida region

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

48,536

42,841

6,790

98,181

95,866

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

48,536

42,841

6,790

98,181

95,866

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

176,131

70,525

41,413

54,839

71,404

70,316

18,556

503,184

404,304

Criticized:

Special Mention

6,986

13,309

20,295

60,618

Substandard

1,168

316

Doubtful

Loss

Total commercial mortgage loans

176,131

70,525

49,567

68,148

71,404

70,316

18,556

524,647

465,238

C&I

Risk Ratings:

Pass

277,637

163,210

77,027

223,504

66,484

35,028

136,261

979,151

826,823

Criticized:

Special Mention

5,974

11,931

17,905

49,946

Substandard

267

24,852

3,678

301

29,098

63,885

Doubtful

Loss

Total C&I loans

277,637

163,210

77,294

254,330

66,484

50,637

136,562

1,026,154

940,654

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

153

As of December 31,

2022

Total

Term Loans

As of December 31, 2021

Amortized Cost Basis by Origination Year (1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

57,999

61,226

4,031

6,790

130,060

133,932

Criticized:

Special Mention

765

Substandard

2,893

4,302

Doubtful

Loss

Total construction loans

57,999

61,226

6,924

6,790

132,953

138,999

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

567,720

211,981

404,528

351,793

265,199

338,109

19,582

2,158,912

1,799,873

Criticized:

Special Mention

1,198

10,569

20,228

12,042

121,673

165,710

319,881

Substandard

135

1,168

2,819

30,107

34,229

47,715

Doubtful

Loss

Total commercial mortgage loans

569,053

211,981

416,265

374,840

277,241

489,889

19,582

2,358,851

2,167,469

C&I

Risk Ratings:

Pass

575,569

358,670

261,883

539,491

154,968

214,229

663,913

2,768,723

2,679,375

Criticized:

Special Mention

138

912

6,474

9,867

14,562

29,176

61,129

82,596

Substandard

203

351

1,591

38,971

725

13,916

654

56,411

125,280

Doubtful

Loss

Total C&I loans

575,910

359,933

263,474

584,936

165,560

242,707

693,743

2,886,263

2,887,251

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

154

The following

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

based on

accrual

status as

December

31,

2022,

and

the

amortized cost

residential

mortgage

loans

portfolio

classes based

accrual

status as of December 31, 2021:

As of December 31,

2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

700

693

802

1,407

3,784

110,030

117,416

124,652

Non-Performing

Total FHA/VA

government-guaranteed loans

700

693

802

1,407

3,784

110,030

117,416

124,652

Conventional residential mortgage loans:

Accrual Status:

Performing

172,628

75,397

31,885

47,911

72,285

1,864,907

2,265,013

2,376,946

Non-Performing

219

279

34,938

35,471

47,975

Total conventional residential mortgage loans

172,628

75,432

31,885

48,130

72,564

1,899,845

2,300,484

2,424,921

Total:

Accrual Status:

Performing

173,328

76,090

32,687

49,318

76,069

1,974,937

2,382,429

2,501,598

Non-Performing

219

279

34,938

35,471

47,975

Total residential mortgage loans in Puerto Rico

and Virgin Islands Region

173,328

76,125

32,687

49,537

76,348

2,009,875

2,417,900

2,549,573

(1)

Excludes accrued interest receivable.

As of December 31,

2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

742

740

Non-Performing

Total FHA/VA

government-guaranteed loans

742

740

Conventional residential mortgage loans:

Accrual Status:

Performing

82,968

49,479

31,405

31,144

37,268

189,083

421,347

421,430

Non-Performing

272

477

6,552

7,301

7,152

Total conventional residential mortgage loans

82,968

49,479

31,405

31,416

37,745

195,635

428,648

428,582

Total:

Accrual Status:

Performing

82,968

49,479

31,405

31,144

37,268

189,825

422,089

422,170

Non-Performing

272

477

6,552

7,301

7,152

Total residential mortgage loans in Florida region

82,968

49,479

31,405

31,416

37,745

196,377

429,390

429,322

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

155

As of December 31,

2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

700

693

802

1,407

3,784

110,772

118,158

125,392

Non-Performing

Total FHA/VA

government-guaranteed loans

700

693

802

1,407

3,784

110,772

118,158

125,392

Conventional residential mortgage loans:

Accrual Status:

Performing

255,596

124,876

63,290

79,055

109,553

2,053,990

2,686,360

2,798,376

Non-Performing

491

756

41,490

42,772

55,127

Total conventional residential mortgage loans

255,596

124,911

63,290

79,546

110,309

2,095,480

2,729,132

2,853,503

Total:

Accrual Status:

Performing

256,296

125,569

64,092

80,462

113,337

2,164,762

2,804,518

2,923,768

Non-Performing

491

756

41,490

42,772

55,127

Total residential mortgage loans

256,296

125,604

64,092

80,953

114,093

2,206,252

2,847,290

2,978,895

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

156

The

following

tables present

the

amortized

cost

consumer

loans

portfolio

classes

and

by origination

year

based on

accrual

status as of December

31, 2022, and the amortized

cost of consumer loans

by portfolio classes based on

accrual status as of December

31, 2021:

As of December 31,

2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

Auto loans:

Accrual Status:

Performing

674,145

510,950

254,196

206,345

99,008

39,138

1,783,782

1,556,097

Non-Performing

1,666

2,140

1,596

2,508

1,385

1,301

10,596

6,684

Total auto loans

675,811

513,090

255,792

208,853

100,393

40,439

1,794,378

1,562,781

Finance leases:

Accrual Status:

Performing

292,995

192,435

88,196

81,186

48,332

13,441

716,585

574,139

Non-Performing

176

253

305

219

384

308

1,645

866

Total finance leases

293,171

192,688

88,501

81,405

48,716

13,749

718,230

575,005

Personal loans:

Accrual Status:

Performing

175,875

55,993

29,320

53,911

22,838

13,727

351,664

314,867

Non-Performing

348

249

135

289

112

115

1,248

1,208

Total personal loans

176,223

56,242

29,455

54,200

22,950

13,842

352,912

316,075

Credit cards:

Accrual Status:

Performing

311,731

290,226

Non-Performing

Total credit cards

311,731

290,226

Other consumer loans:

Accrual Status:

Performing

79,630

21,488

9,345

11,941

4,030

3,761

8,921

139,116

126,734

Non-Performing

409

201

119

241

1,122

1,563

Total other consumer loans

80,039

21,689

9,406

12,060

4,050

4,002

8,992

140,238

128,297

Total:

Performing

1,222,645

780,866

381,057

353,383

174,208

70,067

320,652

3,302,878

2,862,063

Non-Performing

2,599

2,843

2,097

3,135

1,901

1,965

14,611

10,321

Total consumer loans in Puerto Rico and Virgin

Islands region

1,225,244

783,709

383,154

356,518

176,109

72,032

320,723

3,317,489

2,872,384

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

157

As of December 31,

2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

Auto loans:

Accrual Status:

Performing

305

2,333

979

3,617

8,759

Non-Performing

Total auto loans

305

2,369

1,019

3,693

8,759

Finance leases:

Accrual Status:

Performing

Non-Performing

Total finance leases

Personal loans:

Accrual Status:

Performing

254

334

107

Non-Performing

Total personal loans

254

334

107

Credit cards:

Accrual Status:

Performing

Non-Performing

Total credit cards

Other consumer loans:

Accrual Status:

Performing

231

464

2,588

2,462

5,833

6,661

Non-Performing

119

133

Total other consumer loans

231

464

2,609

2,560

5,952

6,794

Total:

Performing

303

302

473

305

2,372

3,567

2,462

9,784

15,527

Non-Performing

195

133

Total consumer loans in Florida region

303

302

473

305

2,408

3,628

2,560

9,979

15,660

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

158

As of December 31,

2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

Auto loans:

Accrual Status:

Performing

674,145

510,950

254,196

206,650

101,341

40,117

1,787,399

1,564,856

Non-Performing

1,666

2,140

1,596

2,508

1,421

1,341

10,672

6,684

Total auto loans

675,811

513,090

255,792

209,158

102,762

41,458

1,798,071

1,571,540

Finance leases:

Accrual Status:

Performing

292,995

192,435

88,196

81,186

48,332

13,441

716,585

574,139

Non-Performing

176

253

305

219

384

308

1,645

866

Total finance leases

293,171

192,688

88,501

81,405

48,716

13,749

718,230

575,005

Personal loans:

Accrual Status:

Performing

176,129

56,064

29,329

53,911

22,838

13,727

351,998

314,974

Non-Performing

348

249

135

289

112

115

1,248

1,208

Total personal loans

176,477

56,313

29,464

54,200

22,950

13,842

353,246

316,182

Credit cards:

Accrual Status:

Performing

311,731

290,226

Non-Performing

Total credit cards

311,731

290,226

Other consumer loans:

Accrual Status:

Performing

79,679

21,719

9,809

11,941

4,069

6,349

11,383

144,949

133,395

Non-Performing

409

201

119

262

169

1,241

1,696

Total other consumer loans

80,088

21,920

9,870

12,060

4,089

6,611

11,552

146,190

135,091

Total:

Performing

1,222,948

781,168

381,530

353,688

176,580

73,634

323,114

3,312,662

2,877,590

Non-Performing

2,599

2,843

2,097

3,135

1,937

2,026

169

14,806

10,454

Total consumer loans

1,225,547

784,011

383,627

356,823

178,517

75,660

323,283

3,327,468

2,888,044

(1)

Excludes accrued interest receivable.

Accrued interest receivable

on loans totaled

53.1

million as of

December 31, 2022

48.1

million as of

December 31, 2021),

was

reported as

part of accrued

interest receivable on

loans and investment

securities in the

consolidated statements

of financial

condition

and is excluded from the estimate of credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

159

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

determining the ACL as of December 31, 2022 and 2021

As of December 31, 2022

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

36,206

2,571

36,206

2,571

Commercial loans:

Construction loans

956

Commercial mortgage loans

2,466

897

62,453

64,919

897

C&I loans

1,513

322

17,590

19,103

322

Consumer loans:

Personal loans

120

Other consumer loans

207

40,448

3,820

81,063

121,511

3,820

As of December 31, 2021

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

51,771

3,966

781

52,552

3,966

Commercial loans:

Construction loans

1,797

Commercial mortgage loans

9,908

1,152

56,361

66,269

1,152

C&I loans

5,781

670

34,043

39,824

670

Consumer loans:

Personal loans

Other consumer loans

782

68,320

5,887

92,982

161,302

5,887

The allowance related

to collateral dependent loans

reported in the tables

above includes qualitative

adjustments applied to

the loan

portfolio

that

consider

possible

changes

circumstances

that

could

ultimately

impact

credit

losses

and

might

not

reflected

historical

data

forecasted

data

incorporated

the

quantitative

models.

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans

consisted

single-family

residential

properties,

and

for

commercial

and

construction

loans

consisted

primarily

office

buildings,

multifamily

residential

properties,

and

retail

establishments.

The

weighted-average

loan-to-

value

coverage

for collateral

dependent

loans as

December 2022

decreased to

%, compared

% as

of December

31, 2021,

mainly driven by the payoff of a $

16.2

million C&I loan in the Puerto Rico region that had a loan-to-value ratio of

116

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

160

Purchases and Sales of Loans

the

ordinary

course

business,

the

Corporation

enters

into

securitization

transactions

and

whole

loan

sales

with

GNMA

and

GSEs,

such

FNMA

and

FHLMC.

During

the

years

ended

December

31,

2022,

2021,

and

2020,

loans

pooled

into GNMA

MBS

amounted

to approximately

144.5

million,

190.8

million and

219.6

million, respectively,

of which

the Corporation

recognized

net gain on

sale of $

4.2

million, $

8.8

million, and $

9.9

million for the

years ended

December 31, 2022,

2021, and 2020,

respectively.

Also, during

the years ended

December 31,

2022, 2021,

and 2020, the

Corporation sold approximately

93.8

million, $

328.2

million,

and

255.0

million,

respectively,

performing

residential

mortgage

loans

FNMA

and

FHLMC,

which

the

Corporation

recognized a net gain on

sale of $

4.2

million, $

11.4

million, and $

8.3

million for the years ended

December 31, 2022, 2021, and

2020,

respectively.

The

Corporation’s

continuing

involvement

with

the

loans

that

sells

consists

primarily

servicing

the

loans.

addition,

the

Corporation

agrees

repurchase

loans

breaches

any

the

representations

and

warranties

included

the

sale

agreement. These

representations and

warranties are consistent

with the GSEs’

selling and servicing

guidelines (i.e.,

ensuring that the

mortgage was properly underwritten according to established guidelines).

For loans

pooled into

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or

after January 1,

2003 when certain

delinquency criteria are

met. This option

gives the Corporation

the unilateral ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

have

regained

effective

control

over

the

loans,

required

recognize

the

loans

and

corresponding

repurchase

liability

regardless

its

intent

repurchase

the

loans.

December

31,

2022

and

2021,

rebooked

GNMA

delinquent

loans

that

were

included in the residential mortgage loan portfolio amounted to $

10.4

million and $

7.2

million, respectively.

During

the

years

ended

December

31,

2022,

2021,

and

2020,

the

Corporation

repurchased,

pursuant

the

aforementioned

repurchase

option,

8.2

million,

1.1

million,

and

55.0

million,

respectively,

loans

previously

pooled

into

GNMA

MBS.

The

principal

balance

these

loans

fully

guaranteed,

and

the

risk

loss

the

repurchased

loans

is generally

limited

the

difference between

the delinquent interest

payment advanced to

GNMA, which is computed

at the loan’s

interest rate, and

the interest

payments

reimbursed

FHA,

which

are

computed

pre-determined

debenture

rate.

Repurchases

GNMA

loans

allow

the

Corporation,

among

other

things,

to maintain

acceptable

delinquency

rates

on outstanding

GNMA

pools

and

remain as

seller

and

servicer in good standing with GNMA.

Historically, losses

on these repurchases of GNMA

delinquent loans have been immaterial

and

no provision has been made at the time of sale.

Loan

sales

FNMA

and

FHLMC

are

without

recourse

relation

the

future

performance

the

loans.

The

Corporation

repurchased at par

loans previously sold

to FNMA and

FHLMC in the

amount of $

0.4

million, $

0.3

million, and $

thousand during

the years

ended December

31, 2022,

2021, and

2020, respectively.

The Corporation’s

risk of

loss with

respect to

these loans

is also

minimal as these repurchased loans are generally performing loans with documentation

deficiencies.

During the

year ended

December 31,

2022, the

Corporation sold

a $

35.2

million C&I

loan participation

in the

Puerto Rico

region

and

a $

23.9

million

criticized

C&I loan

participation

in the

Florida

region.

Also, during

the year

ended

December 31,

2021,

a $

3.1

million

construction

loan

the Puerto

Rico

region

and

four criticized

commercial

loan participations

in the

Florida region

totaling

43.1

million

were sold.

Further,

during the

third quarter

of 2021,

the Corporation

sold $

52.5

million of

non-performing

residential

mortgage loans

and related

servicing advances

of $

2.0

million. The

Corporation received

31.5

million, or

% of book

value before

reserves, for

the $

54.5

million of

non-performing loans

and related

servicing advances.

Approximately $

20.9

million of

reserves had

been

allocated

the

loans

sold.

The

transaction

resulted

total

net

charge-offs

23.1

million

and

additional

loss

approximately $

2.1

million recorded as charge to the provision for credit losses in the third quarter of

2021.

Finally, the

Corporation participated in the

Main Street Lending program

established by the FED under

the CARES Act of 2020,

amended,

support

lending

small

and

medium-sized

businesses

that

were

sound

financial

condition

before

the

onset

the

COVID-19 pandemic.

Under this

program, the

Corporation originated

loans to

borrowers meeting

the terms

and requirements

of the

program, including requirements

as to eligibility,

use of proceeds and

priority,

and sold a 95% participation

interest in these loans

to a

special purpose

vehicle

(the “Main

Street SPV”)

organized

by the

FED to

purchase the

participation

interests from

eligible lenders,

including the

Corporation. During

the fourth

quarter of

2020, the

Corporation originated

loans under

this program

totaling $

184.4

million in principal amount and sold participation interests totaling $

175.1

million to the Main Street SPV.

During

the

years

ended

December

31,

2022,

2021,

and

2020,

the

Corporation

purchased

C&I

loan

participations

the

Florida

region totaling $

135.4

million, $

174.7

million, and $

40.0

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

161

Loan Portfolio Concentration

The Corporation’s

primary

lending area

is Puerto

Rico. The

Corporation’s

banking subsidiary,

FirstBank, also

lends in

the USVI

and BVI markets

and in the

United States (principally

in the state of

Florida). Of the

total gross loans

held for investment

portfolio of

11.6

billion as

of December

31, 2022,

credit risk

concentration was

approximately

% in

Puerto Rico,

% in

the U.S.,

and

% in

the USVI and BVI.

As of

December

31,

2022,

the Corporation

had

169.8

million

outstanding

loans

extended

the Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

178.4

million

December

31,

2021.

December

31,

2022,

approximately

102.7

million consisted

of loans

extended

to municipalities

in Puerto

Rico that

are general

obligations supported

assigned

property

tax

revenues,

and

28.9

million

loans

which

are

supported

one

specific

sources

municipal

revenues.

The

vast

majority

revenues

the

municipalities

included

the

Corporation’s

loan

portfolio

are

independent

budgetary subsidies provided by the Puerto Rico central

government. These municipalities are required

by law to levy special property

taxes in such

amounts as are

required to

satisfy the payment

of all of

their respective

general obligation

bonds and notes.

In addition

loans

extended

municipalities,

the

Corporation’s

exposure

the

Puerto

Rico

government

December

31,

2022

included

10.8

million in loans

granted to an affiliate

of the Puerto

Rico Electric

Power Authority (“PREPA”)

and $

27.4

million in loans to

agency of the Puerto Rico central government.

addition,

December

31,

2022,

the

Corporation

had

84.7

million

exposure

residential

mortgage

loans

that

are

guaranteed by the

PRHFA, a

government instrumentality

that has been designated

as a covered entity

under PROMESA, compared

92.8

million

December

31,

2021.

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties and the guarantees serve to cover shortfalls in collateral in the event

of a borrower default.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

December

31,

2022,

the

Corporation

had

38.0

million in

loans to

USVI government

public corporations,

compared to

39.2

million as

of December

31, 2021.

As of

December 31,

2022,

all loans were currently performing and up to date on principal and interest

payments.

Troubled Debt

Restructurings

The

Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program,

well

other

restructurings of

individual C&I,

commercial mortgage,

construction, and

residential mortgage

loans, fit

the definition

of a

TDR. As

of December

31, 2022,

the Corporation’s

total TDR

loans held

for investment

amounted to

366.7

million, of

which $

328.1

million

were in

accruing status.

See Note

1 –

Nature of

Business and

Summary Significant

of Accounting

Policies, for

information on

when

the

Corporation

classifies

TDR

loans

either

accrual

nonaccrual

loans.

The

total

TDR

loans

held

for

investment

consisted

240.6

million of residential mortgage loans, $

49.6

million of C&I loans, $

63.3

million of commercial mortgage loans, $

1.2

million of

construction loans, and $

12.0

million of consumer loans.

As of December 31, 2022,

the Corporation included as TDRs

0.7

million of

residential mortgage

loans that

were participating

in or

had been

offered a

trial modification,

which generally

represents a

six-month

period

during

which

the

borrower

makes

monthly

payments

under

the

anticipated

modified

payment

terms

prior

formal

modification.

TDR

loans

exclude

restructured

residential

mortgage

loans

that

are

government-guaranteed

(e.g.,

FHA/VA

loans)

totaling $

53.9

million as of December 31, 2022, compared with $

57.6

million as of December 31, 2021. As of December 31,

2022, the

Corporation has committed to lend up to an additional $

thousand on TDR consumer loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

162

The following tables present TDR loans completed during 2022,

2021 and 2020:

Year Ended December 31,

2022

Interest rate

below market

Maturity or

term extension

Combination of

reduction in

interest rate and

extension of

maturity

Forgiveness of

principal and/or

interest

Other

(1)

Total

(In thousands)

Conventional residential mortgage loans

433

1,551

242

4,874

7,100

Construction loans

Commercial mortgage loans

245

5,178

467

5,890

C&I loans

2,402

618

825

1,083

4,928

Consumer loans:

Auto loans

2,877

232

345

3,454

Finance leases

573

591

Personal loans

171

105

394

Credit cards

(2)

816

Other consumer loans

112

272

443

Total TDRs

5,923

3,044

6,504

868

7,277

23,616

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation programs, or

a combination of two or more of the concessions listed

the table. Amounts included in Other that represent a combination

of concessions are excluded from the amounts reported in

the column for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

Year Ended December 31,

2021

Interest rate

below market

Maturity or term

extension

Combination of

reduction in

interest rate and

extension of

maturity

Forgiveness of

principal and/or

interest

Other

(1)

Total

(In thousands)

Conventional residential mortgage loans

365

859

2,647

3,723

7,594

Construction loans

Commercial mortgage loans

10,586

637

11,223

C&I loans

300

9,100

508

9,908

Consumer loans:

Auto loans

1,888

433

277

2,598

Finance leases

645

697

Personal loans

387

504

Credit cards

(2)

1,426

Other consumer loans

110

266

Total TDRs

2,376

23,023

6,364

34,216

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation programs, or

a combination of two or more of the concessions listed

in the

table. Amounts included in Other that represent a combination

of concessions are excluded from the amounts reported in the column

for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

Year Ended December 31,

2020

Interest rate

below market

Maturity or

term extension

Combination of

reduction in

interest rate

and extension

of maturity

Forgiveness of

principal

and/or interest

Forbearance

Agreement

Other

(1)

Total

(In thousands)

Conventional residential mortgage

loans

545

2,044

5,700

8,307

Construction loans

Commercial mortgage loans

271

553

824

C&I loans

4,107

18,386

22,524

Consumer loans:

Auto loans

1,902

413

275

2,623

Finance leases

408

Personal loans

145

305

Credit cards

(2)

783

Other consumer loans

219

545

Total TDRs

2,208

1,523

6,866

219

18,386

7,117

36,319

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation

programs, or a combination of two or more of the

concessions listed in the

table. Amounts included in Other that represent a combination

of concessions are excluded from the amounts reported in the column

for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

163

Year Ended December 31,

2022

2021

2020

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

7,165

7,100

7,687

7,594

103

9,027

8,307

Construction loans

Commercial mortgage loans

5,897

5,890

11,285

11,223

824

C&I loans

5,156

4,928

10,031

9,908

22,544

22,524

Consumer loans:

Auto loans

168

3,404

3,454

134

2,601

2,598

163

2,635

2,623

Finance leases

592

591

692

697

408

Personal loans

366

394

497

504

306

305

Credit Cards

170

815

816

246

1,426

159

783

Other consumer loans

115

434

443

266

145

613

545

Total TDRs

600

23,829

23,616

612

34,485

34,216

648

37,140

36,319

Loan modifications

considered TDR loans

that defaulted (failure

by the borrower

to make payments

of either principal,

interest, or

both for

a period

of 90

days or

more) during

2022, 2021

and 2020,

and had

become TDR

loans during

the 12-months

preceding the

default date, were as follows:

Year Ended December 31,

2022

2021

2020

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

124

465

Construction loans

Commercial mortgage loans

C&I loans

124

Consumer loans:

Auto loans

2,049

1,625

947

Finance leases

Personal loans

Credit cards

156

126

Other consumer loans

209

Total

135

2,375

128

1,797

145

1,850

For

certain

TDR

loans,

the

Corporation

splits

the

loans

into

two

new

notes

(the

“Note

A”

and

the

“Note

B”).

The

Note

restructured to comply

with the Corporation’s

lending standards at

current market rates

and is tailored to

suit the customer’s

ability to

make

timely

interest

and

principal

payments.

The

Note

includes

the

granting

the

concession

the

borrower

and

varies

situation. The

B Note is

fully charged-off,

unless it is

collateral-dependent and

the source of

repayment is

independent of

the A Note

in which

case a

partial charge

-off may

be recorded.

At the

time of

the restructuring,

the A Note

is identified

and classified

as a

TDR

loan. During 2022, 2021, and 2020, there were no new Note A and B restructurings.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

164

NOTE 5 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following tables present the activity in the ACL on loans and finance leases by portfolio

segment for the indicated periods:

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Year Ended December

31,

2022

(In thousands)

ACL:

Beginning balance

74,837

4,048

52,771

34,284

103,090

269,030

Provision for credit losses - (benefit) expense

(8,734)

(2,342)

(18,994)

(1,770)

57,519

25,679

Charge-offs

(6,890)

(123)

(85)

(2,067)

(48,165)

(57,330)

Recoveries

3,547

725

1,372

2,459

14,982

23,085

Ending balance

62,760

2,308

35,064

32,906

127,426

260,464

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Year Ended December

31,

2021

(In thousands)

ACL:

Beginning balance

120,311

5,380

109,342

37,944

112,910

385,887

Provision for credit losses - (benefit) expense

(16,957)

(1,408)

(55,358)

(8,549)

20,552

(61,720)

Charge-offs

(33,294)

(87)

(1,494)

(1,887)

(43,948)

(80,710)

Recoveries

4,777

163

281

6,776

13,576

25,573

Ending balance

74,837

4,048

52,771

34,284

103,090

269,030

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Year Ended December

31, 2020

(In thousands)

ACL:

Beginning balance, prior to adoption of CECL

44,806

2,370

39,194

15,198

53,571

155,139

Impact of adopting CECL

49,837

797

(19,306)

14,731

35,106

81,165

Allowance established for acquired PCD loans

12,739

9,723

1,830

4,452

28,744

Provision for credit losses - expense

(1)

22,427

2,105

81,125

6,627

56,433

168,717

Charge-offs

(11,017)

(76)

(3,330)

(3,634)

(46,483)

(64,540)

Recoveries

1,519

184

1,936

3,192

9,831

16,662

Ending balance

120,311

5,380

109,342

37,944

112,910

385,887

(1)

Includes a $

37.5

million charge related to the establishment of the initial reserves

for non-PCD loans acquired in conjunction with the

BSPR acquisition consisting of: (i) a $

13.5

million

charge related to non-PCD residential mortgage loans;

(ii) a $

9.2

million charge related to non-PCD commercial mortgage loans,

(iii) a $

4.6

million charge related to non-PCD C&I loans,

and (iv) a $

10.2

million charge related to non-PCD consumer loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

165

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, above,

for each portfolio segment.

During 2022,

the Corporation

applied probability

weights to

the baseline

and alternative

downside economic

scenarios

to estimate

the ACL with the baseline

scenario carrying the highest

weight. In weighting these

macroeconomic scenarios, the

Corporation applied

judgment

based

variety

factors

such

economic

uncertainties

associated

the

continued

conflict

Ukraine,

the

overall

inflationary environment

and a potential

slowdown in economic

activity as a

result of the

FED’s policy

actions to control

inflationary

economic conditions. For periods prior to 2022, the Corporation calculated

the ACL using the baseline scenario.

December

31,

2022,

the

ACL

for

loans

and

finance

leases

was

260.5

million,

down

approximately

8.5

million

from

December 31,

2021. The

ACL reduction

for commercial

and construction

loans was

20.8

million during

2022, primarily

reflecting

reduced COVID-19 uncertainties, particularly

on loans in the hotel,

transportation and entertainment industries;

and, to a lesser extent,

the effect

during the

second half

of 2022

of reserve

releases totaling

4.8

million associated

with two

adversely classified

loans that

were paid off

or sold, partially offset

by an increase in

the size of the

loan portfolio. In addition,

there was an ACL

reduction of $

12.0

million for residential mortgage loans,

partially offset by a $

24.3

million increase in the ACL for

consumer loans. The net reduction

the ACL for residential mortgage

loans was primarily driven

by the overall decrease

in the size of this portfolio

and, to a lesser extent,

decrease

qualitative

adjustments

due

improvements

underlying

portfolio

metrics.

The

ACL

increase

for

consumer

loans

consisted

charges

the

provision

57.5

million

recorded

2022

mainly

due

deterioration

the

outlook

certain

macroeconomic variables, such as

the regional unemployment rate,

and an increasing trend in delinquency

and charge-off levels in

the

consumer loan

portfolios.

For those

loans where

the ACL

was determined

based on

a discounted

cash flow

model, the

change in

the

ACL due to the passage of time is recorded as part of the provision for credit losses.

Total

net

charge-offs

decreased

20.9

million

34.2

million,

when

compared

2021.

The

variance

consisted

25.2

million decrease in net

charge-offs on residential

mortgage loans, of which

23.1

million was related to charge-offs

recognized as part

the

bulk

sale

nonaccrual

residential

mortgage

loans

and

servicing

advances

during

the

third

quarter

2021;

partially

offset

a $

2.8

million increase

in net

charge-offs

on consumer

and

finance leases,

primarily

in the

personal loans

portfolio,

and

1.5

million decrease in net recoveries in the commercial and construction loan portfolios.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

166

The tables below

present the ACL

related to loans

and finance leases

and the carrying

values of loans

by portfolio segment

as of

December 31, 2022 and 2021:

As of December 31,

2022

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

Commercial and

Industrial Loans

(1)

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,847,290

132,953

2,358,851

2,886,263

3,327,468

11,552,825

Allowance for credit losses

62,760

2,308

35,064

32,906

127,426

260,464

Allowance for credit losses to

amortized cost

2.20

1.74

1.49

1.14

3.83

2.25

As of December 31,

2021

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

Commercial and

Industrial Loans

(1)

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,978,895

138,999

2,167,469

2,887,251

2,888,044

11,060,658

Allowance for credit losses

74,837

4,048

52,771

34,284

103,090

269,030

Allowance for credit losses to

amortized cost

2.51

2.91

2.43

1.19

3.57

2.43

(1)

As of December 31, 2022 and 2021, includes $

6.8

million and $

145.0

million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA.

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

which

the

Corporation

exposed

credit

risk

via

contractual

obligation

extend

credit,

such

unfunded

loan

commitments

and

standby

letters

credit

for

commercial and construction

loans, unless the

obligation is unconditionally

cancellable by the Corporation.

See Note 29 –

Regulatory

Matters,

Commitments,

and

Contingencies

for

information

on off

-balance

sheet

exposures

as of

December 31,

2022

and

2021.

The

Corporation

estimates

the

ACL

for

these

off-balance

sheet

exposures

following

the

methodology

described

Note

–

Nature

Business and Summary of Accounting Policies. As of

December 31, 2022, the ACL for off-balance

sheet credit exposures increased to

4.3

million, from $

1.5

million as of

December 31, 2021,

mainly driven by

an increase in the

balance of unfunded

loan commitments

principally due to newly originated facilities which remained undrawn

as of December 31, 2022.

The

following

table

presents

the

activity

the

ACL

for

unfunded

loan

commitments

and

standby

letters

credit

for

the

years

ended December 31, 2022, 2021 and 2020:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Beginning Balance

1,537

5,105

Impact of adopting CECL

3,922

Provision for credit losses - expense (benefit)

2,736

(3,568)

1,183

Ending balance

4,273

1,537

5,105

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

167

NOTE 6 – PREMISES AND EQUIPMENT

Premises and equipment comprise:

Useful Life Range In Years

As of December 31,

Minimum

Maximum

2022

2021

(Dollars in thousands)

Buildings and improvements

135,802

138,524

Leasehold improvements

76,390

79,419

Furniture, equipment and software

155,567

148,171

367,759

366,114

Accumulated depreciation and amortization

(264,233)

(251,659)

103,526

114,455

Land

24,485

23,873

Projects in progress

14,924

8,089

Total premises and equipment,

net

142,935

146,417

Depreciation and

amortization expense

amounted to

22.3

million, $

25.0

million, and

20.1

million for

the years ended

December

31, 2022, 2021, and 2020, respectively.

During

the year

ended December

31, 2021,

the Corporation

received insurance

proceeds of

0.6

million related

to the

settlement

and collection of an

insurance claim associated with a

damaged property.

This amount is included as

part of other non-interest

income

in the consolidated statements of income.

During

the year

ended December

31,

2020, the

Corporation

received

insurance proceeds

of $

5.0

million

resulting

from

the final

settlement

the

business

interruption

insurance

claim related

lost profits

caused

by Hurricanes

Irma

and

Maria. This

amount

included

part

other

non-interest

income

the

consolidated

statements

income.

addition,

during

2020,

the

Corporation

received insurance

proceeds of

1.2

million related

to hurricane-related

expenses claims

recorded as

a contra-account

of non-interest

expenses, primarily consisting of occupancy and equipment costs.

See Note 25 - Fair Value

for information on write-downs recorded on long-lived assets held for

sale as of December 31, 2022. Also,

see Note

20 –

Other

Non-Interest

Income

for

gains on

sales of

fixed

assets recognized

during

the years

ended December

31,

2022,

2021, and 2020.

NOTE 7

–

OTHER REAL ESTATE

OWNED

The following table presents the OREO inventory as of the indicated dates:

December 31,

2022

2021

(In thousands)

OREO

OREO balances, carrying value:

Residential

(1)

24,025

29,533

Commercial

5,852

7,331

Construction

1,764

3,984

Total

31,641

40,848

(1)

Excludes $

23.5

million and

22.2

million

as of

December 31,

2022 and

2021,

respectively,

of foreclosures

that meet

the conditions

of ASC

Subtopic 310-40

and are

presented as

receivable as part of other assets in the consolidated statements

of financial condition.

See Note 25 - Fair Value

for information on write-downs recorded on

OREO properties during the years ended

December 31, 2022,

2021, and 2020.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

168

NOTE 8 – RELATED-PARTY

TRANSACTIONS

The

Corporation

has

granted

loans

its

directors,

executive

officers,

and

certain

individuals

entities

the

ordinary

course of business. The movement and balance of these loans were as follows:

Amount

(In thousands)

Balance at December 31,

2020

(1)

504

New loans

286

Payments

(108)

Other changes

261

Balance at December 31,

2021

(1)

943

New loans

Payments

(149)

Balance at December 31,

2022

(1)

883

(1) Includes loans granted to related parties which were then

sold in the secondary market.

These loans

were made

subject to

the provisions

of the

Federal Reserve’s

Regulation O

- “Loans

to Executive

Officers, Directors

and

Principal

Shareholders

Member

Banks,”

which

governs

the

permissible

lending

relationships

between

financial

institution

and its executive officers, directors, principal

shareholders, their families,

and related parties.

Amounts related to changes in the status

of those who are considered

related parties are reported as other

changes in the table above,

which, for 2021, was mainly

related to the

addition

three

new

executive

officers

and

the

departure

one

executive

officer.

There

were

changes

the

status of

parties during 2022.

From

time

time,

the

Corporation,

the

ordinary

course

its

business,

obtains

services

from

parties

makes

contributions to non-profit organizations that have some association

with the Corporation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

169

NOTE 9 – GOODWILL AND OTHER INTANGIBLES

Goodwill

each

December

31,

2022

and

December

31,

2021

amounted

38.6

million.

The Corporation’s policy is to

assess goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if

events or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the

fourth quarter of 2022, management performed a qualitative analysis over the carrying amount of each relevant reporting units’

goodwill and concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This

assessment involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant

events impacting each reporting entity, and evaluating such factors to determine if a positive assertion can be made that it is more-

likely-than-not that the fair value of the reporting units exceeded their carrying amount.

In the qualitative assessment performed for each reporting unit, the Corporation evaluated events and circumstances that could

impact the fair value including the following:

● Macroeconomic conditions, such as improvement or deterioration in general economic conditions;

● Industry and market considerations;

● Interest rate fluctuations;

● Overall financial performance of the entity;

● Performance of industry peers over the last year; and

● Recent market transactions.

Management considered positive and negative evidence obtained during the evaluation of significant events and circumstances and

evaluated such information to conclude that it is more likely than not that the reporting unit’s fair value is greater than their carrying

amount; thus, quantitative tests were not required.

result,

impairment

charges

for

goodwill

were

recorded

during

the

year

ended December 31, 2022.

There were

changes in the

carrying amount

of goodwill during

the year ended

December 31, 2022.

The changes in

the carrying

amount of goodwill attributable to operating segments are reflected in the

following table:

Mortgage Banking

Consumer (Retail)

Banking

Commercial and

Corporate Banking

United States

Operations

Total

(In thousands)

Goodwill, January 1, 2020

1,406

26,692

28,098

Merger and acquisitions

(1)

574

794

4,935

6,303

Measurement period adjustment

(1) (2)

385

533

3,313

4,231

Goodwill, December 31, 2020

959

2,733

8,248

26,692

38,632

Measurement period adjustment

(1) (2)

(148)

(21)

Goodwill, December 31, 2021

1,012

2,807

8,100

26,692

38,611

(1)

Recognized in connection with the BSPR acquisition on September

1, 2020.

(2)

Relates to the fair value estimate update performed within one year

of the closing of the BSPR acquisition, in accordance with

ASC Topic 805, "Business

Combinations"("ASC 805").

Merger and Restructuring Costs – BSPR Acquisition

In connection

with the

BSPR acquisition

on September

1, 2020,

the Corporation

recognized acquisition

expenses of

26.4

million

and $

26.5

million during the years ended

December 31, 2021 and

2020, respectively.

acquisition expenses were recognized

during

the

year

ended

December

31,

2022.

Acquisition,

integration,

and

restructuring

expenses

were

included

merger

and

restructuring

costs in

the consolidated

statements

of income,

and

consisted

primarily

of legal

fees, severance

and

personnel-related costs,

service

contracts

cancellation

penalties,

valuation

services,

systems

conversion,

and

other

integration

efforts,

well

accelerated

depreciation

charges related

to planned

closures and

consolidation of

branches in

accordance with

the Corporation’s

integration

and

restructuring plan.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

170

Other Intangible Assets

The

following

table

shows

the

gross

amount

and

accumulated

amortization

the

Corporation’s

intangible

assets

subject

amortization as of the indicated dates:

As of

December 31,

2022

2021

(Dollars in thousands)

Core deposit intangible:

Gross amount

87,544

Accumulated amortization

(66,644)

(58,973)

Net carrying amount

20,900

28,571

Remaining amortization period (in years)

7.0

8.0

Purchased credit card relationship intangible:

Gross amount

3,800

Accumulated amortization

(3,595)

(2,602)

Net carrying amount

205

1,198

Remaining amortization period (in years)

0.7

1.7

Insurance customer relationship intangible:

Gross amount

1,067

Accumulated amortization

(1,054)

(902)

Net carrying amount

165

Remaining amortization period (in years)

0.1

1.1

During

the

years

ended

December

31,

2022,

2021,

and

2020,

the

Corporation

recognized

8.8

million,

11.4

million,

and

5.9

million, respectively,

in amortization expense on its other intangibles subject to amortization.

The Corporation amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the

related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case

of customer relationship intangibles. The Corporation analyzes core deposit intangibles and customer relationship intangibles annually

for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may suggest impairment include

customer attrition and run-off. Management is unaware of any events and/or circumstances that would indicate a possible impairment

to the core deposit intangibles or customer relationship intangibles as of December 31, 2022.

The estimated

aggregate annual

amortization expense

related to the

intangible assets

subject to amortization

for future periods

was

as follows as of December 31, 2022:

(In thousands)

2023

7,736

2024

6,416

2025

3,509

2026

872

2027

872

2028 and after

1,713

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

171

NOTE 10 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIE”) AND SERVICING

ASSETS

The Corporation

transfers residential

mortgage loans

in sale

or securitization

transactions in

which it

has continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

sales

required

applicable accounting guidance.

When

evaluating

the

need

consolidate

counterparties

which

the

Corporation

has

transferred

assets,

with

which

the

Corporation

has entered

into other

transactions, the

Corporation first

determines if

the counterparty

is an

entity for

which a

variable

interest

exists.

scope

exception

applicable

and

variable

interest

exists,

the

Corporation

then

evaluates

whether

the

primary beneficiary of the VIE and whether the entity should be consolidated

or not.

Below is a summary of transactions with VIEs for which the Corporation has retained

some level of continuing involvement:

Trust-Preferred

Securities

In April 2004,

FBP Statutory Trust

I, a financing

trust that is wholly

owned by the

Corporation, sold to

institutional investors $

100

million of its variable

-rate TRuPs. FBP Statutory

Trust I used

the proceeds of the

issuance, together with the

proceeds of the purchase

the

Corporation

3.1

million

FBP

Statutory

Trust

variable-rate

common

securities, to

purchase

103.1

million

aggregate

principal

amount

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

September

2004,

FBP

Statutory

Trust

II,

financing

trust that

is wholly

owned by

the Corporation,

sold to

institutional investors

125

million of

its variable-rate

TRuPs. FBP

Statutory Trust

II used

the proceeds of

the issuance,

together with

the proceeds of

the purchase by

the Corporation

of $

3.9

million of

FBP Statutory

Trust

II variable-rate

common securities,

to purchase

128.9

million aggregate

principal amount

of the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

The

debentures,

net

issuance

costs,

are

presented

the

Corporation’s

consolidated statements

of financial

condition as

other borrowings.

The variable-rate

TRuPs are fully

and unconditionally

guaranteed

by the

Corporation.

The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September 20, 2034, respectively;

however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be shortened (such shortening

would result in a mandatory redemption of the variable-rate TRuPs).

each

December

31,

2022

and

2021,

these

Junior

Subordinated Deferrable Debentures amounted to $

183.8

million.

During the third

quarter of 2020,

the Corporation completed

the repurchase of

0.4

million of TRuPs

of the FBP

Statutory Trust

which resulted in

a commensurate reduction

in the related Floating

Rate Junior Subordinated

Debentures. The Corporation’s

purchase

price equated

% of

the $

0.4

million par

value. The

% discount

resulted in

a gain

of approximately

0.1

million. This

gain is

reflected in the consolidated statements of income as gain on early extinguishment

of debt.

The Collins Amendment

to the Dodd

-Frank Wall

Street Reform

and Consumer

Protection Act eliminated

certain TRuPs

from Tier

1 capital; however,

these instruments may remain in Tier

2 capital until the instruments are redeemed

or mature. Under the indentures,

the Corporation

has the

right, from

time to

time, and

without causing

an event

of default,

to defer

payments of

interest on

the Junior

Subordinated Deferrable Debentures by extending

the interest payment period at any time and from time

to time during the term of the

subordinated debentures

for up to

twenty consecutive quarterly

periods. As of

December 31, 2022,

the Corporation was

current on all

interest payments due on its subordinated debt.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

172

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

series of

statutory

trusts

effect

the

securitization

mortgage

loans

and

the

sale

trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing for

a fee, which

is senior to

the obligations to

pay private label

MBS holders. The

seller then entered

into a sales

agreement

through

which

it sold

and

issued

the

private

label

MBS in

favor

the

Corporation’s

banking

subsidiary,

FirstBank.

Currently,

the

Bank is

the sole

owner of

these private

label MBS;

the servicing

of the

underlying

residential mortgages

that generate

the principal

and interest

cash flows is

performed by

another third

party,

which receives

a servicing

fee. These

private label

MBS are variable

-rate

securities indexed

3-month LIBOR

plus a spread.

The principal payments

from the underlying

loans are remitted

to a paying

agent

(servicer), who then remits

interest to the Bank. Interest

income is shared to a

certain extent with the FDIC,

which has an interest

only

strip (“IO”)

tied to

the cash

flows of

the underlying

loans and

is entitled

to receive

the excess

of the

interest income

less a

servicing

fee

over

the

variable

rate

income

that

the

Bank

earns

the

securities.

This

limited

the

weighted-average

coupon

the

mortgage

loans. The

FDIC became

the owner

of the

IO upon

its intervention

of the

seller,

a failed

financial institution.

No recourse

agreement

exists,

and

the

Bank,

the

sole

holder

the

securities,

absorbs

all

risks

from

losses

non-accruing

loans

and

repossessed

collateral.

December

31,

2022,

the

amortized

cost

and

fair

value

these

private

label

MBS

amounted

7.9

million

and

5.8

million,

respectively,

with

weighted

average

yield

6.83

which

included

part

the

Corporation’s

available-for-sale debt securities portfolio.

As described in Note 3 – Debt Securities,

the ACL on these private label MBS amounted

0.1

million as of December 31, 2022.

Investment in Unconsolidated Entity

February

16,

2011,

FirstBank

sold

asset

portfolio

consisting

performing

and

nonaccrual

construction,

commercial

mortgage,

and

C&I

loans

with

aggregate

book

value

269.3

million

CPG/GS,

entity

organized

under

the

laws

the

Commonwealth of Puerto

Rico and majority

owned by PRLP Ventures

LLC (“PRLP”), a company

created by Goldman,

Sachs & Co.

and

Caribbean

Property

Group.

connection

with

the

sale,

the

Corporation

received

88.5

million

cash

and

interest

CPG/GS,

and

made

loan

the

amount

136.1

million

representing

seller

financing

provided

FirstBank.

The

loan

was

refinanced

and

consolidated with

other

outstanding

loans of

CPG/GS in

the second

quarter of

2018 and

was paid

in full

in October

2019.

FirstBank’s

equity

interest

CPG/GS

accounted

for

under

the

equity

method.

FirstBank

recorded

loss

its

interest

CPG/GS in

2014 that

reduced to

zero the

carrying amount of

the Bank’s

investment in

CPG/GS. No

negative investment

needs to

reported as

the Bank

has no

legal obligation

or commitment

to provide

further financial

support to

this entity;

thus, no

further losses

have been or will be recorded on this investment.

CPG/GS

used

cash

proceeds

the

aforementioned

seller-financed

loan

cover

operating

expenses

and

debt

service

payments,

including those

related to

the loan

that was paid

off in

October 2019.

FirstBank will

not receive

any return

on its equity

interest until

PRLP receives

an aggregate

amount equivalent

to its

initial investment

and a

priority return

of at

least

%, which

has not

occurred,

resulting in FirstBank’s

interest in CPG/GS being

subordinate to PRLP’s

interest. CPG/GS will

then begin to

make payments pro

rata

PRLP

and

FirstBank,

and

respectively,

until

FirstBank

has

achieved

return

its

invested

capital

and

the

aggregate amount of distributions is equal to FirstBank’s

capital contributions to CPG/GS.

The

Bank

has

determined

that

CPG/GS

VIE

which

the

Bank

not

the

primary

beneficiary.

determining

the

primary

beneficiary

of CPG/GS,

the Bank

considered

applicable guidance

that requires

the Bank

to qualitatively

assess the

determination

whether

it is

the primary

beneficiary (or

consolidator)

of CPG/GS

based on

whether it

has both

the power

to direct

the activities

CPG/GS that most significantly

affect the entity’s

economic performance and the

obligation to absorb losses

of, or the right

to receive

benefits from, CPG/GS

that could potentially

be significant to

the VIE. The

Bank determined that

it does not

have the power to

direct

the activities that most significantly

impact the economic performance

of CPG/GS as it does not

have the right to

manage or influence

the loan portfolio, foreclosure proceedings,

or the construction and sale

of the property; therefore, the

Bank concluded that it is not

the

primary beneficiary of CPG/GS.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

173

Servicing Assets (MSRs)

The

Corporation

typically

transfers

first

lien

residential

mortgage

loans in

conjunction

with

GNMA

securitization

transactions

which the

loans are

exchanged for

cash or

securities that

are readily

redeemed for

cash proceeds

and servicing

rights. The

securities

issued

through

these

transactions

are

guaranteed

GNMA

and,

under

seller/servicer

agreements,

the

Corporation

required

service

the

loans

accordance

with

the

issuers’

servicing

guidelines

and

standards.

December

31,

2022,

the

Corporation

serviced

loans securitized

through

GNMA with

a principal

balance

of $

2.1

billion.

Also, certain

conventional

conforming

loans are

sold to FNMA or FHLMC

with servicing retained. The

Corporation recognizes as separate

assets the rights to service

loans for others,

whether those servicing

assets are originated or

purchased. MSRs are included

as part of other

assets in the consolidated

statements of

financial condition.

The changes in MSRs are show below for the indicated dates:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Balance at beginning of year

30,986

33,071

26,762

Purchases of servicing assets

(1)

7,781

Capitalization of servicing assets

3,122

5,194

4,864

Amortization

(4,978)

(7,215)

(5,777)

Temporary

impairment recoveries (charges), net

124

(206)

Other

(2)

(159)

(188)

(353)

Balance at end of year

29,037

30,986

33,071

(1)

Represents MSRs acquired in the BSPR acquisition.

(2)

Mainly represents adjustments related to the repurchase

of loans serviced for others, including MSRs related to

loans previously serviced for BSPR and eliminated

as part of the acquisition in the third quarter of 2020.

Impairment

charges

are

recognized

through

valuation

allowance

for

each

individual

stratum

servicing

assets.

The

valuation

allowance

is adjusted

to reflect

the amount,

if any,

by which

the cost

basis of

the servicing

asset for

a given

stratum of

loans being

serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing

asset for a given stratum is not recognized.

Changes in the impairment allowance were as follows for the indicated periods:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Balance at beginning of year

202

Temporary impairment

charges

301

OTTI of servicing assets

(77)

Recoveries

(66)

(124)

(95)

Balance at end of year

202

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

174

The components

of net servicing

income, included as

part of mortgage

banking activities in

the consolidated statements

of income,

are shown below for the indicated periods:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Servicing fees

11,096

12,176

9,268

Late charges and prepayment penalties

823

697

570

Adjustment for loans repurchased

(159)

(188)

(353)

Other

(1)

Servicing income, gross

11,760

12,684

9,485

Amortization and impairment of servicing assets

(4,912)

(7,091)

(5,983)

Servicing income, net

6,848

5,593

3,502

The Corporation’s

MSRs are subject

to prepayment

and interest rate

risks. Key economic

assumptions used

in determining

the fair

value at the time of sale of the related mortgages for the indicated periods

ranged as follows:

Weighted Average

Maximum

Minimum

Year Ended

December 31, 2022

Constant prepayment rate:

Government-guaranteed mortgage loans

6.7

18.3

4.8

Conventional conforming mortgage loans

7.4

18.4

3.4

Conventional non-conforming mortgage loans

6.0

21.9

3.6

Discount rate:

Government-guaranteed mortgage loans

11.7

12.0

11.5

Conventional conforming mortgage loans

9.7

10.0

9.5

Conventional non-conforming mortgage loans

12.5

14.5

11.5

Year Ended

December 31, 2021

Constant prepayment rate:

Government-guaranteed mortgage loans

6.2

17.1

3.7

Conventional conforming mortgage loans

6.2

18.2

2.8

Conventional non-conforming mortgage loans

6.4

14.5

4.4

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

12.8

14.5

12.0

Year Ended

December 31, 2020

Constant prepayment rate:

Government-guaranteed mortgage loans

6.1

16.0

3.9

Conventional conforming mortgage loans

6.3

19.0

3.0

Conventional non-conforming mortgage loans

6.3

18.0

4.3

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

12.3

14.5

12.0

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

175

The weighted

averages of the

key economic

assumptions that the

Corporation used

in its valuation

model and the

sensitivity of the

current fair value

to immediate

% and

% adverse changes

in those assumptions

for mortgage loans

as of December

31, 2022 and

2021 were as follows:

December 31,

2022

2021

(In thousands)

Carrying amount of servicing assets

29,037

30,986

Fair value

44,710

42,132

Weighted-average

expected life (in years)

7.80

7.96

Constant prepayment rate (weighted-average annual

rate)

6.40

6.55

Decrease in fair value due to 10% adverse change

1,048

1,027

Decrease in fair value due to 20% adverse change

2,054

2,011

Discount rate (weighted-average annual rate)

10.69

11.17

Decrease in fair value due to 10% adverse change

1,925

1,852

Decrease in fair value due to 20% adverse change

3,704

3,561

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%

variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change

in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is

calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,

increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

176

NOTE 11 – DEPOSITS AND RELATED

INTEREST

The following table summarizes deposit balances as of the indicated dates:

December 31,

2022

2021

(In thousands)

Type of account and interest rate:

Non-interest-bearing deposit accounts

6,112,884

7,027,513

Interest-bearing saving accounts

3,902,888

4,729,387

Interest-bearing checking accounts

3,770,993

3,492,645

Certificates of deposit ("CDs")

2,250,876

2,434,932

Brokered CDs

105,826

100,417

Total

16,143,467

17,784,894

The

weighted-average

interest

rate

total

interest-bearing

deposits

December 31,

2022

and

2021

was

1.03

and

0.31

respectively.

December 31,

2022,

the

aggregate

amount

unplanned

overdrafts

demand

deposits

that

were

reclassified

loans

amounted

1.7

million

(2021

1.6

million).

Pre-arranged

overdrafts

lines

credit,

also

reported

loans,

amounted

24.5

million as of December 31, 2022 (2021 - $

24.2

million).

The following table presents the contractual maturities of CDs, including brokered

CDs, as of December 31, 2022:

Total

(In thousands)

Three months or less

640,532

Over three months to six months

288,407

Over six months to one year

593,915

Over one year to two years

517,970

Over two years to three years

178,158

Over three years to four years

38,952

Over four years to five years

92,103

Over five years

6,665

Total

2,356,702

Total

U.S. time

deposits with

balances of

more than

$250,000 amounted

to $

1.0

billion for

each of

the years

ended December

31,

2022

and 2021.

This amount

does not

include brokered

CDs that

are generally

participated out

by brokers

in shares

of less

than the

FDIC insurance

limit. As

of December 31,

2022, unamortized

broker placement

fees amounted

to $

0.3

million (2021

- $

0.2

million),

which are amortized over the contractual maturity of the brokered CDs under

the interest method.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

177

Brokered CDs mature as follows:

December 31,

2022

(In thousands)

Three months or less

42,681

Over six months to one year

12,986

Over one year to three years

35,440

Over three years to five years

14,719

Total

105,826

As of

December 31,

2022,

deposit

accounts

issued

government

agencies

amounted

to $

2.8

billion

(2021

3.3

billion).

These

deposits are insured by the FDIC up to the applicable limits. The uninsured

portions were collateralized by securities and loans with an

amortized cost

of $

3.1

billion (2021

- $

3.4

billion) and

an estimated

market value

of $

2.7

billion (2021

- $

3.3

billion). In

addition to

securities and loans,

as of December

31, 2022, the

Corporation used $

200.0

million in letters of

credit issued by

the FHLB as pledges

for public deposits

in the Virgin

Islands. As of December

31, 2022, the Corporation

had $

2.3

billion of government

deposits in Puerto

Rico

(2021

2.7

billion),

442.8

million

the

Virgin

Islands

(2021

568.4

million)

and

11.6

million

Florida

(2021

9.6

million).

A table showing interest expense on deposits for the indicated periods

follows:

Year Ended

December 31,

2022

2021

2020

(In thousands)

Interest-bearing checking accounts

15,568

5,776

5,933

Savings

11,191

6,586

11,116

CDs

18,102

26,138

43,350

Brokered CDs

1,500

2,982

7,989

Total

46,361

41,482

68,388

The

total

interest

expense

on deposits

included

the

amortization

broker

placement

fees

brokered

CDs

amounting

0.1

million, $

0.2

million, and

0.5

million for

2022, 2021

and 2020,

respectively.

Total

interest expense

also included

0.5

million,

1.3

million and

1.0

million for

2022, 2021,

and 2020,

respectively,

for the

accretion of premiums

related to

time deposits assumed

in the BSPR acquisition.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

178

NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (repurchase agreements)

as of the indicated dates consisted of the following:

December 31,

2022

2021

(In thousands)

Short-term Fixed-rate repurchase agreements

(1)

75,133

Long-term Fixed-rate repurchase agreements

(2)

300,000

75,133

300,000

(1)

Weighted-average interest rate

4.55

% as of December 31, 2022.

(2)

Weighted-average interest rate

3.35

% as of December 31, 2021. During the first quarter of 2021, the

interest rate related to securities sold under agreement to repurchase

totaling $

200

million changed from a variable rate (3-month LIBOR plus

130

132

basis points) to a fixed rate of

3.90

% after the end of a pre-specified lockout period.

Of the $

300.0

million in long-term

repurchase agreements

outstanding as of

December 31, 2021,

100.0

million matured and

were

repaid

the

first

quarter

2022

and

the

remaining

200.0

million

were

repaid

prior

maturity

upon

the

exercise

the

counterparty’s

call

option

the

fourth

quarter

2022.

addition,

the

Corporation

added

75.1

million

short-term

repurchase

agreements reflecting actions taken as part of management’s

liquidity and funding needs.

Repurchase agreements mature as follows as of the indicated date:

December 31,

2022

(In thousands)

Within one month

25,133

Over one month to three months

50,000

Total

75,133

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

179

The following securities were sold under agreements to repurchase:

As of December 31,

2022

Underlying Securities

Amortized Cost

of Underlying

Securities

Balance of

Borrowing

Approximate

Fair Value of

Underlying

Securities

Weighted Average

Interest Rate of

Security

(Dollars in thousands)

U.S. government-sponsored agencies

60,081

50,134

54,093

0.62

MBS

29,959

24,999

27,010

2.08

Total

90,040

75,133

81,103

Accrued interest receivable

137

As of December 31,

2021

Underlying Securities

Amortized Cost

of Underlying

Securities

Balance of

Borrowing

Approximate

Fair Value of

Underlying

Securities

Weighted Average

Interest Rate of

Security

(Dollars in thousands)

U.S. government-sponsored agencies

MBS

319,225

300,000

321,180

1.33

Total

319,225

300,000

321,180

Accrued interest receivable

599

December

31,

2022

and

2021,

the

securities

underlying

such

agreements

were

delivered

the

dealers

with

which

the

repurchase agreements were transacted. In accordance with

the master agreements, in the event of default, repurchase agreements have

a right of

set-off against

the other party

for amounts owed

under the related

agreement and any

other amount or

obligation owed with

respect to

any other

agreement or

transaction between

them. As

of December

31, 2022

and 2021,

repurchase agreements

were fully

collateralized and

not offset

in the consolidated

statements of financial

condition. See Note

–

Derivative Instruments and

Hedging

Activities for information on rights of set-off associated

to economic undesignated hedges.

The maximum aggregate

balance of repurchase

agreements outstanding

at any month-end

during each of

the year ended

December

31, 2022 and 2021 was $

300.0

million. The average balance during 2022 was $

194.9

million (2021 - $

300.5

million).

Repurchase agreements as of December 31, 2022, grouped by

counterparty, were as follows:

Weighted-Average

Counterparty

Amount

Maturity (In Months)

(Dollars in thousands)

JP Morgan Chase

75,133

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

180

NOTE 13 – ADVANCES

FROM THE FEDERAL HOME LOAN BANK (“FHLB

”)

The following is a summary of the advances from the FHLB as of the indicated dates:

December 31,

2022

2021

(In thousands)

Short-term

Fixed

-rate advances from FHLB

(1)

475,000

Long-term

Fixed

-rate advances from FHLB

(2)

200,000

675,000

200,000

(1)

Weighted-average interest rate of

4.56

% as of December 31, 2022.

(2)

Weighted-average interest rate of

4.25

% and

2.16

% as of December 31, 2022 and 2021, respectively.

Advances from FHLB mature as follows as of the indicated date:

December 31, 2022

(In thousands)

Within one month

350,000

Over one to three months

125,000

Over three to five years

200,000

Total

675,000

The $

200.0

million in

FHLB advances

outstanding as

of December

31, 2021

matured and

were repaid

during the

third quarter

2022. In

addition, during

the fourth

quarter of

2022, the

Corporation added

475.0

million of

short-term FHLB

advances and

200.0

million of long-term FHLB advances.

The maximum

aggregate balance

of advances

from the FHLB

outstanding at

any month-end

during the

years ended

December 31,

2022 and

2021 was

675.0

million and

440.0

million, respectively.

The total

average balance

of FHLB

advances during

2022 was

179.5

million (2021 - $

354.1

million).

The Corporation

receives advances

and applies

for the

issuance of

letters of

credit from

the FHLB

under an

Advances, Collateral

Pledge, and

Security Agreement

(the “Collateral

Agreement”), which

requires the

Corporation to

maintain a

minimum of

qualifying

mortgage

collateral

Treasury

U.S.

agencies

MBS

collateral,

applicable.

The

amount

collateral

required

for

advance

incorporates a

collateral discount

or “haircut,”

which is incorporated

into the member’s

pledge and determined

by the FHLB.

Haircut

refers to the percentage

by which an asset’s

market value is reduced

for the purpose of collateral

levels. As of December

31, 2022 and

2021, the

estimated value

of specific

mortgage loans

pledged as

collateral amounted

to $

1.3

billion and

1.4

billion, respectively,

computed

the

FHLB

for

collateral

purposes,

which

represents

haircut

and

December

31,

2022

and

2021,

respectively.

The

carrying

value

such

loans

December

31,

2022

amounted

1.8

billion

(2021

1.8

billion).

December

31,

2022,

the

estimated

value

U.S.

government-sponsored

agencies’

obligations

and

U.S.

agencies

MBS

pledged

collateral

amounted

to $

238.1

million.

As of

December

31,

2022,

the Corporation

had

additional

capacity

of approximately

644.2

million on

this credit

facility based

on collateral

pledged

at the

FHLB, adjusted

by a

haircut reflecting

the perceived

risk associated

with the collateral.

Advances may

be repaid

prior to maturity,

in whole or

in part, at

the option of

the borrower

upon payment

of any

applicable

fee specified

in the

contract

governing

such advance.

calculating

the fee,

due

consideration

is given

to (i)

all

relevant

factors,

including,

but

not limited

to,

any

and

all applicable

costs of

repurchasing

and/or prepaying

any

associated

liabilities and/or

hedges

entered

into

with

respect

the

applicable

advance;

(ii)

the

financial

characteristics,

their

entirety,

the

advance

being

prepaid;

and (iii),

in the

case of

adjustable-rate

advances,

the expected

future earnings

of the

replacement

borrowing

as long

as the

replacement borrowing

is at least

equal to

the original

advance’s

par value

and the

replacement borrowing’s

tenor is

at least

equal to

the remaining maturity of the prepaid advance.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

181

NOTE 14 – OTHER BORROWINGS

Junior Subordinated Debentures

Junior subordinated debentures, as of the indicated dates, consisted of:

December 31,

(In thousands)

2022

2021

Floating rate junior subordinated debentures (FBP Statutory Trust

(1) (3)

65,205

Floating rate junior subordinated debentures (FBP Statutory Trust

II)

(2)(3)

118,557

183,762

(1)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.75

% over

3-month LIBOR

(

7.49

% as of December 31, 2022 and

2.97

as of December 31, 2021).

(2)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.50

% over

3-month LIBOR

(

7.25

% as of December 31, 2022 and

2.71

as of December 31, 2021).

(3)

See Note 10 - Non-Consolidated Variable

Interest Entities and Servicing Assets for additional information on

the nature and terms of these debentures.

Loans Payable

The

Corporation

participates

the

BIC

Program

the

FED.

Through

the

BIC

Program,

broad

range

loans

(including

commercial,

consumer,

and residential

mortgages)

may be

pledged as

collateral for

borrowings through

the FED

Discount Window.

December

31,

2022,

pledged

collateral

that

this

credit

facility

amounted

2.2

billion,

mainly

commercial,

consumer,

and

residential

mortgage

loans,

which

after

margin

“haircut”

discount

the

value

collateral

pledged,

represents

approximately $

1.3

billion of credit

availability under

this program.

The FED Discount

Window program

provides the opportunity

access a

low-rate short-term

source of

funding in

a high

volatility market

environment. There

were

outstanding borrowings

under

the FED Discount Window as of December

31, 2022 and 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

182

NOTE 15 – EARNINGS PER COMMON

The calculations of earnings per common share for the years ended December 31,

2022, 2021, and 2020 are as follows:

Year

Ended December 31,

2022

2021

2020

(In thousands, except per share information)

Net income

305,072

281,025

102,273

Less: Preferred stock dividends

(2,453)

(2,676)

Less: Excess of redemption value over carrying value of Series A through E

Preferred Stock redeemed

(1,234)

Net income attributable to common stockholders

305,072

277,338

99,597

Weighted-Average

Average common

shares outstanding

190,805

210,122

216,904

Average potential

dilutive common shares

1,163

1,178

764

Average common

shares outstanding - assuming dilution

191,968

211,300

217,668

Earnings per common share:

Basic

1.60

1.32

0.46

Diluted

1.59

1.31

0.46

Earnings

per

common

computed

dividing

net

income

attributable

common

stockholders

the

weighted-average

number of common shares issued and outstanding. Net income attributable

to common stockholders represents net income adjusted for

any preferred

stock dividends,

including any

dividends declared

but not

yet paid,

and any cumulative

dividends related

to the

current

dividend period that have not been declared as of

the end of the period. For 2021, net income attributable

to common stockholders was

also adjusted due

to the one

-time effect

to retained

earnings of the

excess of the

redemption value

paid over the

carrying value of

the

Series A through E Preferred Stock redeemed as discussed in

Note 17 – Stockholders’ Equity.

Basic weighted-average common shares

outstanding exclude unvested shares of restricted stock that do not

contain non-forfeitable dividend rights.

Potential dilutive

common shares

consist of

unvested shares

of restricted

stock that

do not

contain non-forfeitable

dividend rights

using the

treasury stock

method. This

method assumes

that proceeds

equal to

the amount

of compensation

cost attributable

to future

services

used

repurchase

the

open

market

the

average

market

price

for

the

period.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock

outstanding

during

the

period

that

result

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock method

are not included

in the computation

dilutive

earnings

per

since

their

inclusion

would

have an

antidilutive

effect

earnings

per

share.

There

were

antidilutive

shares of

common stock

during the

years ended

December 31,

2022, 2021

and 2020.

Potential dilutive

common shares

also include

performance units that do

not contain non-forfeitable

dividend rights if the

performance condition is

met as of the end

of the reporting

period.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

183

NOTE 16 – STOCK-BASED

COMPENSATION

April

29,

2008,

the

Corporation’s

stockholders

approved

the

Omnibus

Plan.

amended

and

restated

Omnibus

Plan

was

subsequently approved

by the

Corporation’s

stockholders on

May 24,

2016 to,

among other

things, increase

the number

of shares

common stock

reserved for

issuance under

the Omnibus

Plan, extend

the term

of the

Omnibus Plan

to May

24, 2026

and re-approve

the

material

terms

the

performance

goals under

the

Omnibus

Plan

for

purposes

the

then-effective

Section

162(m)

the

U.S.

Internal

Revenue

Code

1986,

amended.

The

Omnibus

Plan

provides

for

equity-based

and

non

equity-based

compensation

incentives

(the

“awards”).

The

Omnibus

Plan

authorizes

the

issuance

14,169,807

common

stock,

subject

adjustments

for

stock

splits,

reorganizations

and

other

similar

events.

December

31,

2022,

there

were

3,830,165

authorized

common

stock

available

for

issuance

under

the

Omnibus

Plan.

The

Corporation’s

Board

Directors,

based

the

recommendation of

the Corporation’s

Compensation and

Benefits Committee, has the

power and authority

to determine those eligible

to receive

awards and

to establish the

terms and conditions

of any

awards, subject to

various limits and

vesting restrictions

that apply

to individual and aggregate awards.

Restricted Stock

Under the

Omnibus Plan,

the Corporation

may grant

restricted stock

to plan

participants, subject

to forfeiture

upon the

occurrence

of certain

events until

the dates

specified in

the participant’s

award agreement.

While the

restricted stock

is subject

to forfeiture

and

does

not

contain

non-forfeitable

dividend

rights,

participants

may

exercise

full

voting

rights

with

respect

the

restricted

stock

granted

them.

The

fair

value

the

restricted

stock

granted

was

based

the

market

price

the

Corporation’s

common stock

on the

date of

the respective

grant.

The shares

of restricted

stocks granted

to employees

are subject

to the

following

vesting period:

fifty percent

(

%) of

those shares

vest on

the

two-year

anniversary of

the grant

date and

the remaining

% vest

the

three-year

anniversary of

the grant

date. The

shares of

restricted stock

granted to

directors are

generally subject

to vesting

on the

one-year

anniversary of the grant date.

Common shares issued during the year

ended December 31, 2022 in connection with

restricted

stock awards were reissued from treasury shares.

The following table summarizes the restricted stock activity under the Omnibus

Plan during the years ended December 31, 2022

and 2021:

2022

2021

Number of

Weighted-

Number of

Weighted-

shares of

Average

shares of

Average

restricted

Grant Date

restricted

Grant Date

stock

Fair Value

stock

Fair Value

Unvested shares outstanding at beginning of year

1,148,775

6.61

1,320,723

5.74

Granted

(1)

327,195

13.21

324,360

11.47

Forfeited

(15,108)

8.79

(82,486)

6.42

Vested

(522,371)

6.13

(413,822)

7.69

Unvested shares outstanding at end of year

938,491

9.14

1,148,775

6.61

(1)

For the year ended December 31, 2022, includes

27,529

shares of restricted stock awarded to independent directors and

299,666

shares of restricted stock awarded to employees, of

which

6,084

shares were granted to retirement-eligible employees and thus

charged to earnings as of the grant date. Includes for the

year ended December 31, 2021,

29,291

shares of

restricted stock awarded to independent directors and

295,069

shares of restricted stock awarded to employees, of which

19,804

shares were granted to retirement-eligible employees

and thus charged to earnings as of the grant date.

For the

years ended

December 31,

2022, 2021,

and 2020,

the Corporation

recognized $

3.7

million, $

3.5

million, and

3.2

million,

respectively,

stock-based

compensation

expense

restricted

stock

awards.

December

31,

2022,

there

was

3.8

million of total unrecognized compensation cost related to

unvested shares of restricted stock that the Corporation expects to recognize

over a weighted average period of

1.5

years.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

184

Performance Units

Under the Omnibus Plan, the Corporation may award

performance units to participants,

with each unit representing the value of one

the

Corporation’s

common

stock.

These awards, which are granted to executives, do not contain non-forfeitable rights to

dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock. The performance units will vest on

the third anniversary of the effective date of the awards, subject to the achievement of a pre-established tangible book value per share

target, adjusted for certain allowable non-recurring transactions. All the performance units will vest if performance is at the pre-

established performance target level or above at the end of a three-year performance period. However, the participants may vest with

respect to 50% of the awards to the extent that performance is below the target but not less than 80% of the pre-established

performance target level (the “80% minimum threshold”), which is measured based upon the growth in the tangible book value during

the performance cycle. If performance is between the 80% minimum threshold and the pre-established performance target level, the

participants will vest on a proportional amount. No performance units will vest if performance is below the 80% minimum threshold.

The performance

units granted

during the

year ended

December 31,

2022 are

for the

performance period

beginning January

1, 2022

and ending on December 31, 2024.

The following table

summarizes the performance

units activity under

the Omnibus Plan

during the years

ended December 31, 2022

and 2021:

Year

Ended

Year

Ended

(Number of units)

December 31,

2022

December 31,

2021

Performance units at beginning of year

814,899

1,006,768

Additions

166,669

160,485

Vested

(1)

(189,645)

(304,408)

Forfeited

(47,946)

Performance units as of December 31, 2022

791,923

814,899

(1)

Units vested during 2022 are related to performance units granted

in 2019 that met the pre-established target and

were settled with shares of common stock reissued from treasury

shares.

Units vested during 2021 are related to performance units granted in

2018 that met the pre-established target and were

settled with new shares of common stock.

The

fair

values

the

performance

units

awarded

were

based

the

market

price

the

Corporation’s

common

stock

the

respective date

of the grant.

For the

years ended

December 31,

2022, 2021,

and 2020,

the Corporation

recognized $

1.7

million, $

2.0

million, and $

1.8

million, respectively,

of stock-based compensation

expense related

to performance units.

As of December

31, 2022,

there was

2.5

million of

total unrecognized

compensation cost

related to

unvested performance

units that

the Corporation

expects to

recognize over

the next

three years.

The total

amount of

compensation expense

recognized reflects

management’s

assessment of

the

probability

that

the

pre-established

performance

goal

will

achieved.

The

Corporation

will

recognize

cumulative

adjustment

compensation expense in the then-current period to reflect any changes in the probability

of achievement of the performance goals.

Other awards

Under

the Omnibus

Plan,

the Corporation

may

grant

shares of

unrestricted

stock to

plan

participants.

During the

third

quarter

2020, the

Corporation granted

to its independent

directors

19,157

shares of unrestricted

stock that were

fully vested

at the time

of the

grant

date.

For

the

year

ended

December

31,

2020,

the

Corporation

recognized

0.1

million

stock-based

compensation

expense

related to unrestricted stock awards. There were

grants of unrestricted stock in 2022 and 2021.

Shares withheld

During the year ended

December 31, 2022, the

Corporation withheld

205,807

shares (2021 –

214,374

shares) of the restricted

stock

that vested

during

such period

to cover

the officers’

payroll and

income tax

withholding liabilities;

these shares

are held

as treasury

shares. The Corporation

paid in cash any fractional

share of salary stock

to which an officer

was entitled. In the

consolidated financial

statements, the Corporation presents shares withheld for tax purposes as common

stock repurchases.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

185

NOTE 17 –

STOCKHOLDERS’

EQUITY

Stock Repurchase Programs

During the

first quarter

of 2022

the Corporation

completed the

300

million stock

repurchase program

approved by

the Board

Directors on

April 26, 2021

by purchasing though

open market transactions

3,409,697

shares of common

stock at an

average price of

14.66

for a total purchase price of approximately $

million.

On April

27, 2022,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation

may repurchase

up to

350

million of

its outstanding

common stock,

which commenced

in the

second quarter

of 2022.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases

and/or

privately

negotiated

transactions

or plans,

including

plans

complying

with

Rule 10b5-1

under the

Exchange

Act.

The Corporation’s

common

stock repurchase

program

is subject

to various

factors,

including

the Corporation’s

capital

position,

liquidity,

financial performance

and

alternative

uses

capital,

stock

trading

price,

and

general

market

conditions.

The

repurchase

program

may

modified,

suspended, or

terminated at

any time

at the

Corporation’s

discretion.

The program

does not

obligate the

Corporation to

acquire any

specific number

of shares

and does

not have

an expiration

date.

Under this

stock repurchase

program,

the Corporation

repurchased

during

the

year

ended

December

31,

2022,

16,003,674

common

stock

through

open

market

transactions

average

purchase

price of

14.06

per share

for

a total

price

of approximately

225

million.

As of

December

31, 2022,

the Corporation

has

remaining authorization to repurchase approximately $

125

million of common stock.

During

the

year

ended

December

31,

2022,

First

BanCorp.

repurchased

19,413,371

for

total

purchase

price

approximately $

275

million under all stock repurchase programs.

The shares received are held as treasury stock.

Common Stock

The following table shows the change in shares of common stock outstanding for

the years ended December 31, 2022, 2021 and 2020:

Total

Number of Shares

2022

2021

2020

Common stock outstanding, beginning balance

201,826,505

218,235,064

217,359,337

Common stock repurchased

(1)

(19,619,178)

(16,954,841)

(51,814)

Common stock reissued/issued under stock-based compensation

plan

516,840

628,768

930,627

Restricted stock forfeited

(15,108)

(82,486)

(3,086)

Common stock outstanding, ending balances

182,709,059

201,826,505

218,235,064

(1)

For 2022, 2021 and 2020 includes

205,807

214,374

and

51,814

shares, respectively, of common stock

surrender to cover officers' payroll and income taxes.

For

the

years

ended

December

31,

2022,

2021

and

2020,

total

cash

dividends

declared

common

stock

amounted

88.2

million,

65.4

million,

and

43.8

million,

respectively.

February 9, 2023

the

Corporation

announced

that

its

Board

Directors

had

declared

quarterly

cash

dividend

0.14

per

common

share,

which

represents

increase

0.02

per

common

compared

its

most

recent

dividend

paid

December

2022.

The

dividend

payable

March 10, 2023

shareholders of

record at

the close

of business

February 24, 2023

. The

Corporation intends

to continue

to pay

quarterly dividends

common

stock.

However,

the

Corporation’s

common

stock

dividends,

including

the

declaration,

timing,

and

amount,

remain

subject to consideration and approval by the Corporation’s

Board Directors at the relevant times.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

186

Preferred Stock

The

Corporation

has

50,000,000

authorized

preferred

stock

with

par value

of $

1.00

redeemable

the

Corporation’s

option, subject to certain terms. This stock may be issued in series and

the shares of each series have such rights and preferences as are

fixed by the Board of Directors when authorizing the issuance of that particular series.

November

30,

2021,

the

Corporation

redeemed

all

its

1,444,146

then

outstanding

Series

through

Preferred

Stock for

its liquidation

value of

per share

totaling $

36.1

million. The

difference

between the

liquidation value

and net

carrying

value was $

1.2

million, which was recorded as

a reduction to retained earnings

in 2021. The redeemed preferred

stock shares were not

listed on any

securities exchange

or automated quotation

system.

shares of preferred

stock have been

subsequently issued or

were

outstanding during the year ended

December 31, 2022. For the years

ended December 31, 2021 and 2020,

total cash dividends paid on

shares of preferred stock amounted to $

2.5

million and $

2.7

million, respectively.

Treasury Stock

The following table shows the change in shares of treasury stock for the years ended December

31,

2022, 2021 and 2020.

Total

Number of Shares

2022

2021

2020

Treasury stock, beginning balance

21,836,611

4,799,284

4,744,384

Common stock repurchased

(1)

19,619,178

16,954,841

51,814

Common stock reissued under stock-based compensation plan

(516,840)

Restricted stock forfeited

15,108

82,486

3,086

Treasury stock, ending balances

40,954,057

21,836,611

4,799,284

(1)

For 2022, 2021 and 2020 includes

205,807

214,374

and

51,814

shares, respectively, of common stock

surrender to cover officers' payroll and income taxes.

FirstBank Statutory Reserve (Legal Surplus)

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

minimum

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

common and preferred

stock. Amounts transferred

to the legal surplus

reserve from retained

earnings are not available

for distribution

to the Corporation without the

prior consent of the Puerto

Rico Commissioner of Financial Institutions.

The Puerto Rico Banking Law

provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over

receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal

surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the

outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal

surplus reserve to an amount of at least 20% of the original capital contributed.

During the years ended

December 31, 2022

and 2021,

30.9

million and

28.3

million, respectively,

was transferred

to the

legal surplus

reserve. FirstBank’s

legal surplus

reserve, included

part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted

168.5

million

and

137.6

million as of December 31, 2022 and 2021, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

187

NOTE 18 – OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents change in accumulated other comprehensive (loss)

income for the years ended December 31, 2022,

2021, and 2020:

Changes in Accumulated Other Comprehensive

(Loss) Income by Component

(1)

Year ended December 31,

2022

2021

2020

(In thousands)

Unrealized net holding (losses) gains on available-for-sale

debt securities:

Beginning balance

(87,390)

55,725

6,764

Other comprehensive (loss) income

(718,582)

(143,115)

48,961

Ending balance

(805,972)

(87,390)

55,725

Adjustment of pension and postretirement

benefit plans:

Beginning balance

3,391

(270)

Other comprehensive (loss) income

(2,197)

3,661

(270)

Ending balance

1,194

3,391

(270)

____________________

(1) All amounts presented are net of tax.

The following table presents the amounts reclassified out of each component

of accumulated other comprehensive (loss) income for

the years ended December 31, 2022, 2021, and 2020:

Reclassifications Out of Accumulated Other

Comprehensive (Loss) Income

Affected Line Item in the Consolidated

Statements of Income

Year ended

December 31,

2022

2021

2020

(In thousands)

Unrealized net holding (losses) gains on

available-for-sale debt securities:

Realized gain on sales

Net gain on investment securities

(13,198)

Adjustment of pension and postretirement

benefit plans:

Amortization of net loss

Other expenses

Total before tax

(13,198)

Income tax expense

(1)

Total, net of tax

(13,198)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

188

NOTE 19 – EMPLOYEE BENEFIT PLANS

The Corporation

maintains two frozen

qualified noncontributory

defined benefit pension

plans (the “Pension

Plans”), and

a related

complementary

post-retirement

benefit

plan

(the

“Postretirement

Benefit

Plan”)

covering

medical

benefits

and

life

insurance

after

retirement that it

obtained in the BSPR

acquisition on September

1, 2020. One

defined benefit pension

plan covers substantially

all of

BSPR’s

former employees

who were

active before

January 1,

2007, while

the other

defined benefit

pension plan

covers personnel

institution

previously

acquired

BSPR.

Benefits

are

based

salary

and

years

service.

The

accrual

benefits

under

the

Pension Plans is frozen to all participants.

The

Corporation

requires

recognition

plan’s

overfunded

and

underfunded

status

asset

liability

with

offsetting

adjustment to accumulated other comprehensive loss (income) pursuant

to the ASC Topic 715,

Compensation-Retirement Benefits.

The following

table presents

the changes

in projected

benefit obligation

and changes

in plan

assets for

the years

ended December

31, 2022 and 2021:

December 31, 2022

December 31, 2021

(In thousands)

Changes in projected benefit obligation:

Projected benefit obligation at the beginning of period, defined benefit

pension

plans

97,867

108,253

Interest cost

2,614

2,473

Actuarial gain

(1)

(21,265)

(6,699)

Benefits paid

(5,708)

(6,160)

Projected benefit obligation at the end of period, pension plans

73,508

97,867

Projected benefit obligation, other postretirement benefit plan

182

195

Projected benefit obligation at the end of period

73,690

98,062

Changes in plan assets:

Fair value of plan assets at the beginning of period

103,487

105,963

Actual return on plan assets - (loss) gain

(20,590)

3,684

Benefits paid

(5,708)

(6,160)

Fair value of pension plan assets at the end of period

(2)

77,189

103,487

Net asset, pension plans

3,681

5,620

Net benefit obligation, other postretirement benefit plan

(182)

(195)

Net asset

3,499

5,425

(1)

Significant components of the Pension Plans’ actuarial gain that

changed the benefit obligation were mainly related to updates

in discount rates.

(2)

Other postretirement plan did not contain any assets as of

December 31, 2022 and 2021.

The weighted-average

discount rate

used to

determine

the benefit

obligation

as of

December

31, 2022

and

2021, was

5.43

% and

2.77

respectively.

The

discount

rate

estimated

the

single

equivalent

rate

such

that

the

present

value

the

plan’s

projected

benefit obligation

cash flows

using the

single rate

equals the

present value

of those

cash flows

using the

above mean

actuarial yield

curve.

developing

the

expected

long-term

rate

return

assumption,

the

Corporation

evaluated

input

from

consultant

and

the

Corporation’s

long-term inflation

assumptions and

interest rate

scenarios. Projected

returns are

based on

the same

asset categories

the plan using

well-known broad

indexes. Expected

returns are based

on historical

returns with adjustments

to reflect a

more realistic

future return. The Corporation anticipated

that the Plan’s portfolio

would generate a long-term rate of

return of

4.80

% and

4.43

% as of

December 31, 2022 and 2021. Adjustments are done

by categories, taking into consideration current and future

market conditions. The

Corporation also considered

historical returns on

its plan assets to

review the expected

rate of return. The

investment policy statement

for

the

Pension

Plans

includes

the

following:

(i)

liability

hedging

assets

reduce

funded

status

risk,

(ii)

diversified

return

seeking

assets to reduce

equity risk,

and (iii) establishes

different glidepaths

specific for

each plan

to systematically reduce

risk as

the funded

status improves.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

189

The following

table presents

information

for

the plans

with a

projected

benefit obligation

and accumulated

benefit obligation

excess of plan assets for the years ended December 31, 2022 and 2021:

December 31, 2022

December 31, 2021

(In thousands)

Projected benefit obligation

48,501

195

Accumulated benefit obligation

48,501

195

Fair value of plan assets

46,398

The following

table presents

the components

of net

periodic benefit

for the

years ended

December 31,

2022 and

2021, and

for the

period from September 1, 2020 to December 31, 2020:

Affected Line Item

Period from

in the Consolidated

September 1, 2020 to

Statements of Income

December 31, 2022

December 31, 2021

December 31, 2020

(In thousands)

Net periodic benefit, pension plans:

Interest cost

Other expenses

2,614

2,473

900

Expected return on plan assets

Other expenses

(4,158)

(4,523)

(2,062)

Net periodic benefit, pension plans

(1,544)

(2,050)

(1,162)

Net periodic cost, postretirement plan

Other expenses

Net periodic benefit

(1,536)

(2,044)

(1,160)

The following table

presents the weighted-average

assumptions used to determine

the net periodic benefit

for the pension and

other

postretirement

benefit

plans

for

the

years

ended

December

31,

2022

and

2021,

and

for

the

period

from

September

2020

December 31, 2020:

Period from

September 1, 2020 to

December 31, 2022

December 31, 2021

December 31, 2020

Discount rate

2.77%

2.36%

2.53%

Expected return on plan assets

4.43%

5.99%

5.98%

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

190

The following table presents the changes in pre-tax accumulated other comprehensive

income (loss) of the Pension Plans and

Postretirement Benefit Plan as of December 31, 2022, 2021, and 2020:

December 31, 2022

December 31, 2021

Period from

September 1, 2020

December 31, 2020

(In thousands)

Accumulated other comprehensive income (loss) at beginning of period,

pension plans

5,457

(404)

Net (loss) gain

(3,483)

5,861

(404)

Accumulated other comprehensive income (loss) at end of period, pension

plans

1,974

5,457

(404)

Accumulated other comprehensive loss at end of period,

postretirement plan

(61)

(29)

(28)

Accumulated other comprehensive income (loss) at end of period

1,913

5,428

(432)

The following are the pre-tax amounts recognized

in accumulated other comprehensive (loss) income for

the years ended December

31, 2022 and 2021, and for the period from September 1, 2020 to December 31,

2020:

December

31, 2022

December 31, 2021

Period from

September 1, 2020

to December 31,

2020

(In thousands)

Net actuarial (loss) gain, pension plans

(3,483)

5,861

(404)

Net actuarial loss, other postretirement benefit plan

(35)

(2)

(28)

Amortization of net loss

Net amount recognized

(3,515)

5,860

(432)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

191

The Pension Plans asset allocations as of December 31, 2022 and 2021 by asset category

are as follows:

December 31, 2022

December 31, 2021

Asset category

Investment in funds

97%

98%

Other

100%

December

31,

2022

and

2021,

substantially

all

the

plan

assets

77.2

million

and

103.5

million,

respectively,

were

invested

common

collective

trusts,

which

primarily

consist of

equity

securities,

mortgage-backed

securities,

corporate

bonds

and

U.S.

Treasuries.

The

portfolios

both

plans

have

been

measured

fair

value

using

the

net

asset

value

per

unit

practical

expedient

as permitted

by ASC

Topic

820 and,

accordingly,

have not

been classified

in the

fair value

hierarchy as

of December

31,

2022.

Determination of Fair Value

The following is a description of the valuation inputs and techniques

used to measure the fair value of pension plan assets:

Investment in

Funds -

Investment in

common collective

trusts have

been measured

at fair

value using

the net

assets value

per unit

practical expedient and, accordingly,

have not been classified in the

fair value hierarchy.

Fair value is based on the calculated

net asset

value of shares held by the Plan as reported by the sponsor of the funds.

Interest-Bearing

Deposits

Interest-bearing

deposits consist

money

market

accounts with

short-term

maturities and,

therefore,

the carrying value approximates fair value.

The Corporation does

t expect to contribute to the Pension Plans during 2023.

The Corporation’s

investment policy

with respect

to the

Corporation’s

Pension

Plans is

to optimize,

without undue

risk, the

total

return

on investment

of the

Plan assets

after inflation,

within

a framework

of prudent

and reasonable

portfolio

risk. The

investment

portfolio

diversified

multiple

asset

classes

reduce

portfolio

risk,

and

assets

may

shifted

between

asset

classes

reduce

volatility when

warranted by projections

of the economic

and/or financial

market environment,

consistent with

Employee Retirement

Income

Security Act

of 1974,

as amended

(ERISA).

As circumstances

and

market conditions

change,

the Corporation’s

target

asset

allocations

may

amended

to reflect

the

most

appropriate

distribution

given

the new

environment,

consistent with

the

investment

objectives.

Expected future benefit payments for the plans are as follows:

Amount

(Dollars in thousands)

2023

6,436

2024

6,292

2025

5,985

2026

5,999

2027

5,860

2028 through 2031

27,411

57,983

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

192

Defined Contribution Plan

addition,

FirstBank

provides

contributory

retirement

plans

pursuant

Section 1081.01

the

Puerto

Rico

Internal

Revenue

Code of

2011

(the “2011

PR Code”)

for Puerto

Rico employees

and Section 401(k)

of the U.S.

Internal Revenue

Code for

USVI and

U.S. employees (the “Plans”).

All of the Corporation’s

full-time employees are

eligible to participate

in the Plans after

completion of

three months

of service

for purposes

of making

elective deferral

contributions and

one year

of service

for purposes

of sharing

in the

Bank’s

matching, qualified

matching, and

qualified non-elective

contributions. The

Bank contributes

a matching

contribution of

fifty

cents for

every dollar

up to

the first

% of

the participants’

eligible compensation

that a

participant contributes

to the

Plan on

a pre-

tax basis.

The matching contribution of fifty cents for every dollar of the employee’s contribution is comprised of: (i) twenty-five

cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be paid to the Plan as of

each bi-weekly payroll; and (ii) an additional twenty-five cents for every dollar of the employee’s contribution up to 6% of the

employee’s eligible compensation to be deposited as a lump sum subsequent to the Plan Year.

Puerto Rico employees

were permitted

to contribute

up to $

15,000

for each of

the years ended

December 31,

2022, 2021

and 2020 (USVI

and U.S. employees

- $

20,500

for

2022,

19,500

for

2021

and

19,500

for

2020).

Additional

contributions

the

Plans

may

voluntarily

made

the

Bank

determined

by its

Board of

Directors.

additional discretionary

contributions were

made for

the years

ended December

31,

2022,

2021, and 2020.

The Bank had total

plan expenses of

3.5

million for the

year ended December

31, 2022 (2021

- $

3.5

million; 2020 -

3.0

million).

September

2020,

the

Bank

completed

the

acquisition

Santander

Bancorp,

wholly-owned

subsidiary

Santander

Holdings USA,

Inc. and

the holding

company of

BSPR. Prior

to the

acquisition date,

BSPR was

the sponsor

of the

Banco Santander

de Puerto Rico Employees’

Savings Plan (“the Santander

Plan”). Effective on

September 1, 2020, the

Bank became the sponsor

of the

Santander Plan. Overall responsibility for

administrating the Santander Plan rests with

the Plan’s Administration

Committee. Effective

December 31,

2020, the

Santander Plan

was merged

with the

Plans. The

contributory savings

plan assumed

in the

BSPR acquisition

also provided for matching contribution up to

% of the employee’s compensation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

193

NOTE 20 – OTHER NON-INTEREST INCOME

A detail of other non-interest income is as follows for the indicated periods:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Non-deferrable loan fees

3,167

2,990

3,750

Mail and cable transmission commissions

3,100

3,116

2,540

Gain from insurance proceeds

550

5,000

Net (loss) gain on equity securities

(522)

(102)

Gain from sales of fixed assets

924

215

Other

9,181

5,843

4,682

Total

15,850

12,429

16,225

NOTE 21 – OTHER NON-INTEREST EXPENSES

A detail of other non-interest expenses is as follows for the indicated periods:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Supplies and printing

1,505

1,830

2,391

Amortization of intangible assets

8,816

11,407

5,912

Servicing and processing fees

5,343

5,121

4,696

Insurance and supervisory fees

9,354

9,098

6,324

Provision for operational losses

2,518

5,069

3,390

Other

3,126

2,898

3,105

Total

30,662

35,423

25,818

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

194

NOTE 22 –

INCOME TAXES

Income

tax

expense

includes

Puerto

Rico

and

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

The

Corporation is subject

to Puerto Rico income

tax on its income

from all sources.

As a Puerto Rico

corporation, FirstBank 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.

Under

the

2011

Code,

the

Corporation

and

its

subsidiaries

are

treated

separate

taxable

entities

and

are

not

entitled

file

consolidated

tax

returns

and,

thus,

the

Corporation

generally

not

entitled

utilize

losses

from

one

subsidiary

offset

gains

another

subsidiary.

Accordingly,

in order

to obtain

a tax

benefit from

a net

operating

loss (“NOL”),

a particular

subsidiary

must be

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

Pursuant

the

2011

Code,

the

carry-forward period

for NOLs

incurred during

taxable years

that commenced

after December

31, 2004

and ended

before January

2013 is 12 years;

for NOLs incurred during

taxable years commencing after

December 31, 2012, the

carryover period is 10

years. The

2011

Code

provides

dividend

received

deduction

100

dividends

received

from

“controlled”

subsidiaries

subject

taxation in Puerto Rico and

% on dividends received from other taxable domestic corporations.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

Puerto

Rico

maximum

statutory

rate

37.5

mainly

investing in government

obligations and MBS exempt

from U.S. and Puerto

Rico income taxes and

by doing business through

an IBE

unit of

the Bank,

and through

the Bank’s

subsidiary,

FirstBank

Overseas Corporation,

whose interest

income and

gains on

sales are

exempt

from

Puerto

Rico

income

taxation.

The

IBE

unit

and

FirstBank

Overseas

Corporation

were

created

under

the

International

Banking Entity

Act of

Puerto Rico,

which provides

for total

Puerto Rico

tax exemption

on net

income derived

by IBEs

operating in

Puerto

Rico

the

specific

activities

identified

the

IBE

Act.

IBE

that

operates

unit

bank

pays

income

taxes

the

corporate standard rates to the extent that the IBE’s

net income exceeds

% of the bank’s total net taxable income.

The components of income tax expense are summarized below for

the indicated periods:

Year

Ended December 31,

2022

2021

2020

(In thousands)

Current income tax expense

88,296

28,469

18,421

Deferred income tax expense:

Reversal of deferred tax asset valuation allowance

(8,000)

Other deferred income tax expense

54,216

118,323

3,629

Total income

tax expense

142,512

146,792

14,050

The differences between the income tax expense applicable to income

before the provision for income taxes and the amount

computed by applying the statutory tax rate in Puerto Rico were as follows for

the indicated periods:

Year Ended December

31,

2022

2021

2020

Amount

% of Pretax

Income

Amount

% of Pretax

Income

Amount

% of Pretax

Income

(Dollars in thousands)

Computed income tax at statutory rate

167,844

37.5

160,431

37.5

43,621

37.5

Federal and state taxes

10,268

2.2

7,014

1.6

4,944

4.2

Benefit of net exempt income

(31,266)

(7.0)

(20,717)

(4.8)

(26,780)

(23.0)

Disallowed NOL carryforward resulting from net exempt

income

14,221

3.2

8,791

2.0

9,054

7.8

Deferred tax valuation allowance

(8,410)

(1.9)

(13,572)

(3.2)

(12,095)

(10.4)

Share-based compensation windfall

(1,492)

(0.3)

(1,044)

(0.2)

157

0.1

Other permanent differences

(7,647)

(1.7)

(1,185)

(0.3)

(387)

(0.3)

Tax return to provision adjustments

(519)

(0.1)

(406)

(0.1)

597

0.5

Other-net

(487)

(0.1)

7,480

1.7

(5,061)

(4.3)

Total income tax expense

142,512

31.8

146,792

34.2

14,050

12.1

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

195

Deferred income taxes reflect the net tax effects of temporary differences

between the carrying amounts of assets and liabilities for

financial reporting purposes and their tax bases. Significant components

of the Corporation's deferred tax assets and liabilities as of

December 31, 2022 and 2021 were as follows:

December 31,

2022

2021

(In thousands)

Deferred tax asset:

NOL and capital losses carryforward

72,485

137,860

Allowance for credit losses

104,014

105,917

Alternative Minimum Tax

credits available for carryforward

40,823

37,361

Unrealized loss on OREO valuation

6,462

7,703

Settlement payment-closing agreement

7,031

Legal and other reserves

6,345

4,576

Reserve for insurance premium cancellations

781

881

Differences between the assigned values and tax bases of assets

and liabilities recognized in purchase business combinations

5,665

8,926

Unrealized loss on available-for-sale debt securities, net

100,776

14,181

Other

7,722

4,420

Total gross deferred tax assets

352,104

328,856

Deferred tax liabilities:

Servicing assets

9,786

10,510

Pension Plan assets

719

2,035

Other

509

506

Total gross deferred tax liabilities

11,014

13,051

Valuation

allowance

(185,506)

(107,323)

Net deferred tax asset

155,584

208,482

Accounting

for

income

taxes

requires

that

companies

assess

whether

valuation

allowance

should

recorded

against

their

deferred

tax

asset

based

assessment

the

amount

the

deferred

tax

asset

that

“more

likely

than

not”

realized.

Valua

tion allowances

are established,

when necessary,

to reduce

deferred tax

assets to

the amount

that is

more likely

than not

to be

realized. Management

assesses the valuation

allowance recorded

against deferred

tax assets at

each reporting

date. The determ

ination

of whether a

valuation allowance for

deferred tax assets is

appropriate is subject

to considerable judgment

and requires the

evaluation

positive

and

negative

evidence

that

can

objectively

verified.

Consideration

must

given

all

sources

taxable

income

available to realize

the deferred tax asset,

including, as applicable,

the future reversal

of existing temporary

differences, future

taxable

income forecasts exclusive of the reversal of temporary

differences and carryforwards, and tax planning

strategies. In estimating taxes,

management assesses

the relative

merits and

risks of

the appropriate

tax treatment

of transactions

considering statutory,

judicial, and

regulatory guidance.

The

net

deferred

tax

asset

the

Corporation’s

banking

subsidiary,

FirstBank,

amounted

155.6

million

December

31,

2022,

net

valuation

allowance

149.5

million,

compared

net

deferred

tax

asset

208.4

million,

net

valuation

allowance

69.7

million,

December

31,

2021.

The

decrease

the

deferred

tax

assets

was

mainly

driven

the

usage

NOLs. The

increase in

the valuation

allowance during

2022 was

primarily related

to the

change in

the market

value of

available-for-

sale debt securities. The Corporation maintains a full valuation

allowance for its deferred tax assets associated with capital

losses carry

forward

and

unrealized

losses

available-for-sale

debt

securities.

Thus,

the

change

the

market

value

available-for-sale

debt

securities resulted in a change in the deferred tax asset and an equal change

in the valuation allowance without impacting earnings.

Management’s

estimate

future

taxable

income

based

internal

projections

that

consider

historical

performance,

multiple

internal scenarios and

assumptions, as well as

external data that

management believes is

reasonable. If events

are identified that

affect

the Corporation’s

ability to utilize

its deferred tax

assets, the analysis

will be updated

to determine if

any adjustments to

the valuation

allowance

are

required.

actual

results

differ

significantly

from

the

current

estimates

future

taxable

income,

even

caused

adverse

macro-economic

conditions,

the

remaining

valuation

allowance

may

need

increased.

Such

increase

could

have

material adverse effect on the Corporation’s

financial condition and results of operations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

196

As of December

31, 2022, approximately

279.9

million of the

deferred tax

assets of the

Corporation are

attributable to temporary

differences

tax

credit

carryforwards

that

have

expiration

date,

compared

177.9

million

2021.

The

valuation

allowance

attributable to

FirstBank’s

deferred tax

assets of $

149.5

million as

of December

31, 2022 is

related to

the change in

the market

value

of available-for-sale

debt securities,

NOLs attributable

to the Virgin

Islands jurisdiction,

and capital

losses. The remaining

balance of

36.0

million of the

Corporation’s

deferred tax asset

valuation allowance non-attributable

to FirstBank is

mainly related to

NOLs and

capital losses

at the

holding

company level.

The Corporation

will continue

to provide

a valuation

allowance against

its deferred

tax

assets in each

applicable tax

jurisdiction until

the need

for a valuation

allowance is

eliminated. The

need for

a valuation

allowance is

eliminated

when

the

Corporation

determines

that

likely

than

not

the

deferred

tax

assets

will

realized.

The

ability

recognize the

remaining deferred

tax assets that

continue to

be subject to

a valuation

allowance will be

evaluated on

a quarterly basis

to determine

if there

are any

significant

events that

would affect

the ability

to utilize

these deferred

tax assets.

As of

December

31,

2022,

the

72.5

million

NOL

and

capital

losses

carryforward,

61.2

million,

which

are

fully

valued,

have

expiration

dates

ranging from year

2023 through year

2037. From this

amount, approximately

30.5

million expires in

year 2023 and

are not expected

to be realized.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

the

U.S.

Internal

Revenue Code

(“Section 382”)

covering a

comprehensive period

and concluded

that an

ownership

change had

occurred during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

that

would

have

incurred

the

absence of such limitation. The Corporation has mitigated

to an extent the adverse effects associated with the

Section 382 limitation as

any

such

tax

paid

the

U.S.

USVI

can

creditable

against

Puerto

Rico

tax

liabilities

taken

deduction

against

taxable

income. However,

our ability

to reduce

our Puerto

Rico tax

liability through

such a

credit or

deduction depends

on our

tax profile

each annual taxable

period, which is dependent

on various factors.

For 2022, 2021

and 2020, the Corporation

incurred current income

tax expense

of approximately $

10.3

million, $

6.8

million and $

4.9

million, respectively,

related to its

U.S. operations.

The limitation

did not impact the USVI operations in 2022, 2021 and 2020.

On August

16, 2022,

the Inflation

Reduction Act

of 2022

(the “IRA”)

was signed

into law

in the

United States.

The IRA

includes

various tax

provisions, including

a 1%

excise tax

on stock

repurchases, and

a 15%

corporate alternative

minimum tax

that generally

applies

U.S.

corporations

with

average

adjusted

financial

statement

income

over

three-year

period

excess

billion.

The

legislation did

not have

an effect

on the Corporation’s

effective tax

rate in

2022 and

is not expected

to have

a material

impact on our

2023 financial results, including on our annual estimated effective

tax rate or on our liquidity.

The Corporation

accounts for uncertain

tax positions under

the provisions of

ASC Topic

740. The Corporation’s

policy is to

report

interest and penalties related to unrecognized

tax positions in income tax expense. As

of December 31, 2022, the Corporation had

0.2

million of

accrued interest

and penalties

related to

uncertain tax

positions in

the amount

of $

1.0

million that

it acquired

from BSPR,

which,

recognized,

would

decrease

the

effective

income

tax

rate

future

periods.

During

2022,

0.4

million

benefit

was

recognized as a

result of the

expiration of uncertain

tax positions acquired

from BSPR. The

amount of unrecognized

tax benefits may

increase

decrease

the

future

for

various

reasons,

including

adding

amounts

for

current

tax

year

positions,

expiration

open

income

tax returns

due

to the

statute of

limitations,

changes

in management’s

judgment about

the level

of uncertainty,

the status

examinations,

litigation

and

legislative activity,

and

the addition

or elimination

of uncertain

tax positions.

The statute

limitations

under the 2011

PR code is

four years after

a tax return

is due or

filed, whichever

is later; the

statute of limitations

for U.S. and

USVI

income

tax

purposes

three

years

after

tax

return

due

filed,

whichever

later.

The

completion

audit

the

taxing

authorities

the

expiration

the

statute

limitations

for

given

audit

period

could

result

adjustment

the Corporation’s

liability for

income taxes. Any

such adjustment could

be material to

the results of

operations for any

given quarterly

or annual period

based, in part, upon

the results of operations

for the given period.

For U.S. and USVI

income tax purposes, all

tax years subsequent

2018 remain open to examination. For Puerto Rico tax purposes, all tax years

subsequent to 2017 remain open to examination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

197

NOTE 23

–

OPERATING

LEASES

The

Corporation

accounts

for

its

leases

accordance

with

ASC

842

“Leases”

(“ASC

Topic

842).

The

Corporation’s

operating

leases are primarily

related to the

Corporation’s

branches. Our

leases mainly have

terms ranging

from

two years

30 years

, some of

which

include

options

extend

the

leases

for

ten years

Liabilities

make

future

lease

payments

are

recorded

accounts

payable

and

other

liabilities,

while

right-of-use

(“ROU”)

assets

are

recorded

other

assets

the

Corporation’s

consolidated

statements of

financial condition.

As of

December 31,

2022 and

2021, the

Corporation did

not classify

any of

its leases

as a

finance

lease.

Operating lease cost for the

year ended December 31, 2022

amounted to $

18.4

million (2021 - $

18.2

million; 2020 - $

13.8

million),

and is recorded in occupancy and equipment in the consolidated

statements

of income.

Supplemental balance sheet information related to leases as of the indicated

dates was as follows:

As of

December 31,

2022

2021

(Dollars in thousands)

ROU asset

78,855

90,319

Operating lease liability

81,954

93,772

Operating lease weighted-average remaining lease term (in years)

7.5

8.0

Operating lease weighted-average discount rate

2.37%

2.24%

Generally,

the

Corporation

cannot

practically

determine

the interest

rate

implicit

the lease.

Therefore,

the Corporation

uses

its

incremental borrowing rate as the discount rate for

the lease. See Note 1 – Nature of Business and Summary of

Significant Accounting

Policies for information on how the Corporation determines its incremental

borrowing rate.

Supplemental cash flow information related to leases was as follows:

Year Ended

December 31,

2022

2021

2020

(In thousands)

Operating cash flow from operating leases

(1)

18,202

19,328

13,464

ROU assets obtained in exchange for operating lease liabilities

(2) (3)

5,744

5,833

1,328

(1)

Represents cash paid for amounts included in the measurement of operating

lease liabilities.

(2)

Represents non-cash activity and, accordingly,

is not reflected in the consolidated statements of cash flows.

For the year ended December 31, 2020 excludes $

52.1

million ROU assets and

related liabilities assumed in the BSPR acquisition.

(3)

For the year ended December 31, 2022 and 2021 excludes $

3.0

million and $

1.3

million, respectively, of lease

terminations. For the year ended December 31, 2020, there were

lease

terminations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

198

Maturities under operating lease liabilities as of December 31, 2022,

were as follows:

Amount

(In thousands)

2023

16,763

2024

16,008

2025

15,096

2026

14,025

2027

5,929

2028 and after

23,025

Total lease payments

90,846

Less: imputed interest

(8,892)

Total present value

of lease liability

81,954

Leases Not Yet

Commenced

As of

December 31,

2022, the

Corporation

has additional

operating

leases that

were signed

but have

not yet

commenced with

undiscounted contract amount of $

1.1

million, which will have lease terms ranging from

five

ten years

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

199

NOTE 24 – DERIVATIVE

INSTRUMENTS

AND HEDGING ACTIVITIES

One of

the market

risks facing

the Corporation

is interest

rate risk,

which includes

the risk that

changes in

interest rates

will result

in changes in the value of

the Corporation’s assets or

liabilities and will adversely

affect the Corporation’s

net interest income from its

loan

and

investment

portfolios.

The

overall

objective

the

Corporation’s

interest

rate

risk

management

activities

reduce

the

variability of earnings caused by changes in interest rates.

As of

December 31,

2022 and

2021, all

derivatives held

by the

Corporation were

considered economic

undesignated hedges.

The

Corporation records these undesignated hedges at fair value with the

resulting gain or loss recognized in current earnings.

The following summarizes the principal derivative activities used by

the Corporation in managing interest rate risk:

Interest Rate

Cap Agreements

– Interest rate cap

agreements provide the right

to receive cash if

a reference interest rate rises

above

a contractual rate. The value of

the interest rate cap increases as the

reference interest rate rises. The Corporation

enters into interest

rate cap agreements for protection from rising interest rates.

Forward

Contracts

–

Forward

contracts

are

primarily

sales

to-be-announced

(“TBA”)

MBS

that

will

settle

over

the

standard

delivery

date

and

not

qualify

“regular

way”

security

trades.

Regular-way

security

trades

are

contracts

that

have

net

settlement provision and no market

mechanism to facilitate net settlement

and that provide for delivery

of a security within the

time

frame

generally

established

regulations

conventions

the

marketplace

exchange

which

the

transaction

being

executed.

The forward

sales are

considered

derivative

instruments

that need

to be

marked

to market.

The Corporation

uses these

securities

economically

hedge

the

FHA/VA

residential

mortgage

loan

securitizations

the mortgage

banking

operations.

The

Corporation

also

reports

as forward

contracts

the mandatory

mortgage

loan

sales commitments

that

it enters

into with

GSEs that

require or

permit net settlement

via a pair-off

transaction or the

payment of

a pair-off

fee. Unrealized gains

(losses) are recognized

as part of mortgage banking activities in the consolidated statements of income

Interest

Rate

Lock

Commitments

–

Interest

rate

lock

commitments

are

agreements

under

which

the

Corporation

agrees to

extend

credit to a borrower under

certain specified terms and conditions in

which the interest rate and the maximum

amount of the loan are

set prior to funding.

Under the agreement,

the Corporation commits

to lend funds to

a potential borrower,

generally on a fixed

rate

basis, regardless of whether interest rates change in the market.

Interest Rate

Swaps

– The Corporation

acquired interest

rate swaps

as a result

of the acquisition

of BSPR. An

interest rate

swap is

agreement

between

two

entities

exchange

cash

flows

the

future.

The

agreements

acquired

from

BSPR

consist

the

Corporation offering

borrower-facing derivative

products using a

“back-to-back” structure

in which the

borrower-facing derivative

transaction is paired

with an identical, offsetting

transaction with an

approved dealer-counterparty.

By using a back-to-back

trading

structure, both

the commercial

borrower and

the Corporation

are largely

insulated from

market risk

and volatility.

The agreements

set the

dates on

which

the cash

flows will

be paid

and

the manner

in which

the cash

flows will

be calculated.

The fair

values

these swaps

are recorded

as components

of other

assets or

accounts payable

and other

liabilities in

the Corporation’s

consolidated

statements of financial

condition. Changes in

the fair values of

interest rate swaps,

which occur due

to changes in interest

rates, are

recorded in the consolidated statements of income as a component of interest income

on loans.

satisfy

the

needs

its

customers,

the

Corporation

may

enter

into

non-hedging

transactions.

these

transactions,

the

Corporation generally participates as

a buyer in one

of the agreements and

as a seller in the

other agreement under

the same terms and

conditions.

In addition, the Corporation

enters into certain contracts

with embedded derivatives that

do not require separate accounting

as these

are clearly and closely

related to the economic

characteristics of the host

contract. When the embedded

derivative possesses economic

characteristics that are not clearly and closely related

to the economic characteristics of the host contract,

it is bifurcated, carried at fair

value, and designated as a trading or non-hedging derivative instrument.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

200

The following table summarizes for derivative instruments their notional

amounts, fair values and location in the consolidated

statements of financial condition as of the indicated dates:

Asset Derivatives

Liability Derivatives

Notional Amounts

(1)

Statements of Financial

Condition Location

Fair Value

Statements of Financial Condition

Location

Fair Value

December 31,

2022

2021

2022

2021

2022

2021

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

9,290

12,588

Other assets

313

1,098

Accounts payable and other liabilities

278

1,092

Written interest rate cap agreements

14,500

Other assets

Accounts payable and other liabilities

197

Purchased interest rate cap agreements

14,500

Other assets

199

Accounts payable and other liabilities

Interest rate lock commitments

3,225

12,097

Other assets

379

Accounts payable and other liabilities

Forward Contracts:

Sales of TBA GNMA MBS pools

11,000

27,000

Other assets

Accounts payable and other liabilities

Forward loan sales commitments

12,668

Other assets

Accounts payable and other liabilities

52,515

93,353

633

1,505

476

1,178

(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.

The following table summarizes the effect of derivative instruments on

the consolidated statements of income for the indicated

periods:

Gain (or Loss)

Location of Gain (Loss)

Year ended

on Derivative Recognized in

December 31,

Statements of Income

2022

2021

2020

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

Interest income - loans

Written and purchased interest rate cap agreements

Interest income - loans

Interest rate lock commitments

Mortgage banking activities

(322)

(687)

576

Forward contracts:

Sales of TBA GNMA MBS pools

Mortgage banking activities

135

114

(54)

Forward loan sales commitments

Mortgage banking activities

(20)

(37)

Total (loss) gain on derivatives

(177)

(549)

512

Derivative

instruments

are

subject

market

risk.

the

case

with

investment

securities,

the

market

value

derivative

instruments

is largely

function

the financial

market’s

expectations

regarding

the future

direction

of interest

rates.

Accordingly,

current market

values are

not necessarily

indicative of

the future

impact of

derivative instruments

on earnings.

This will

depend, for

the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations

for rates in the future.

As of

December 31,

2022 and

2021, the

Corporation had

not entered

into any

derivative instrument

containing credit

-risk-related

contingent features.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

201

Credit and Market Risk of Derivatives

The

Corporation

uses

derivative

instruments

manage

interest

rate

risk.

using

derivative

instruments,

the

Corporation

exposed to credit and market risk.

If the

counterparty

fails to

perform, credit

risk is

equal to

the extent

of the

Corporation’s

fair value

gain on

the derivative.

When

the fair value of

a derivative instrument contract

is positive, this generally

indicates that the counterparty

owes the Corporation which,

therefore, creates a credit

risk for the Corporation.

When the fair value

of a derivative instrument

contract is negative, the

Corporation

owes the counterparty.

The Corporation minimizes

its credit risk in

derivative instruments by

entering into transactions with

reputable

broker

dealers

(

i.e.,

financial

institutions)

that

are

reviewed

periodically

the

Management

Investment

and

Asset

Liability

Committee of the

Corporation (the “MIALCO”)

and by the Board

of Directors. The

Corporation also has

a policy of requiring

that all

derivative instrument contracts be governed by an International Swaps and

Derivatives Association Master Agreement, which includes

provision

for

netting.

The

Corporation

has

policy

diversifying

derivatives

counterparties

reduce

the

consequences

counterparty default.

The cumulative mark

-to-market effect

of credit risk

in the valuation

of derivative

instruments in 2022,

2021 and

2020 was immaterial.

Market risk is

the adverse effect

that a change

in interest rates

or implied volatility

rates has on

the value of

a financial instrument.

The Corporation

manages the

market risk

associated with

interest rate

contracts by

establishing and

monitoring limits

as to

the types

and degree of risk that may be undertaken.

accordance

with

the

master

agreements,

the

event

default,

each

party

has

right

set-off

against

the

other

party

for

amounts

owed

under

the

agreement

and

any

other

amount

obligation

owed

with

respect

any

other

agreement

transaction

between

them.

December

31,

2022

and

2021,

derivatives

were

overcollateralized.

See

Note

–

Securities

Sold

Under Agreements to Repurchase for information on rights of set-off

associated to assets sold under agreements to repurchase.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

202

NOTE 25 –

FAIR VALUE

Fair Value

Measurement

ASC Topic

820, “Fair

Value

Measurement,”

defines fair

value as

the exchange

price that

would be

received for

an asset

or paid

transfer

liability

(an

exit

price)

the

principal

most

advantageous

market

for

the

asset

liability

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

fair value

hierarchy for

classifying assets

and

liabilities, which is based on

whether the inputs to

the valuation techniques used

to measure fair value are

observable or unobservable.

One of three levels of inputs may be used to measure fair value:

Level 1

Valuations

Level

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

luations of

Level 2 assets

and liabilities

are based on

observable inputs

other than Level

1 prices, such

as quoted

prices for similar assets or liabilities, or other inputs that are

observable or can be corroborated by observable market

data for substantially the full term of the assets or liabilities.

Level 3

luations of Level 3 assets and

liabilities are based on unobservable

inputs that are supported by

little or no market

activity and

are significant to

the fair value

of the assets

or liabilities. Level

3 assets and

liabilities include financial

instruments

whose value

is determined

by using

pricing models

for

which

the determination

of fair

value

requires

significant management judgment as to the estimation.

Financial Instruments Recorded at Fair Value

on a Recurring Basis

Debt securities available for sale and marketable equity securities held at fair value

The fair

value of

investment securities

was based

on unadjusted

quoted market

prices (as

is the

case with

U.S. Treasury

securities

and equity securities with

readily determinable fair values),

when available (Level 1),

or market prices for comparable

assets (as is the

case with

U.S. agencies

MBS and

U.S. agency

debt securities)

that are

based on

observable market

parameters, including

benchmark

yields,

reported

trades,

quotes

from

brokers

dealers,

issuer

spreads,

bids,

offers

and

reference

data,

including

market

research

operations,

when available

(Level 2).

Observable prices

in the

market already

consider the

risk of

nonperformance. If

listed prices

quotes are

not available, fair

value is based

upon discounted

cash flow models

that use unobservable

inputs due to

the limited market

activity of the instrument, as is the case with certain private label MBS held by the

Corporation (Level 3).

Derivative instruments

The

fair

value

most

the

Corporation’s

derivative

instruments

based

observable

market

parameters

and

takes

into

consideration

the

credit

risk

component

paying

counterparties,

when

appropriate.

On interest

caps,

only

the

seller's

credit

risk

considered.

The

Corporation

valued

the

interest

rate

swaps

and

caps

using

discounted

cash

flow

approach

based

the

LIBOR and swap forward rate for each cash flow.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

203

Assets and liabilities measured at fair value on a recurring basis are summarized below as of

December 31, 2022 and 2021:

As of December 31,

2022

As of December 31, 2021

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Debt securities available for sale:

U.S. Treasury securities

138,875

148,486

Noncallable U.S. agencies debt securities

389,787

285,028

Callable U.S. agencies debt securities

1,963,566

1,971,954

MBS

3,098,797

5,794

(1)

3,104,591

4,037,209

7,234

(1)

4,044,443

Puerto Rico government obligations

2,201

2,850

Other investments

500

1,000

Equity securities

4,861

5,378

Derivative assets

633

1,505

Liabilities:

Derivative liabilities

476

1,178

(1) Related to private label MBS.

The table

below presents

a reconciliation

of the

beginning and

ending balances

of all

assets measured

at fair

value on

a recurring

basis using significant unobservable inputs (Level 3) for the years ended

December 31, 2022, 2021, and 2020:

2022

2021

2020

Level 3 Instruments Only

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

(In thousands)

Beginning balance

11,084

11,977

14,590

Total gains (losses):

Included in other comprehensive income (unrealized)

(401)

1,281

2,403

Included in earnings (unrealized)

(2)

434

136

(1,641)

BSPR securities acquired

150

Purchases

1,000

Principal repayments and amortization

(2,622)

(3,310)

(3,525)

Ending balance

8,495

11,084

11,977

___________________

(1)

Amounts mostly related to private label MBS.

(2)

Changes in unrealized gains included in earnings were recognized within

provision for credit losses - expense (benefit) and relate

to assets still held as of the reporting date.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

204

The tables below present quantitative information for significant assets measured at

fair value on a recurring basis using significant

unobservable inputs (Level 3) as of December 31, 2022 and 2021:

December 31,

2022

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

5,794

Discounted cash flows

Discount rate

16.2%

Prepayment rate

1.5%

15.2%

11.8%

Projected cumulative loss rate

0.3%

15.6%

5.6%

Puerto Rico government obligations

2,201

Discounted cash flows

Discount rate

12.9%

Projected cumulative loss rate

19.3%

December 31,

2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

7,234

Discounted cash flows

Discount rate

12.9%

Prepayment rate

7.6%

24.9%

15.2%

Projected cumulative loss rate

0.2%

15.7%

7.6%

Puerto Rico government obligations

2,850

Discounted cash flows

Discount rate

6.6%

8.4%

7.9%

Projected cumulative loss rate

8.6%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label

MBS: The

significant unobservable

inputs in

the valuation

include probability

of default,

the loss

severity

assumption,

and prepayment

rates. Shifts

in those

inputs would

result in different

fair value

measurements. Increases

in the probability

of default,

loss

severity

assumptions,

and

prepayment

rates

isolation

would

generally

result

adverse

effect

the

fair

value

the

instruments. The Corporation modeled meaningful and possible

shifts of each input to assess the effect on the fair value estimation.

Puerto Rico

Government Obligations:

The significant

unobservable input

used in

the fair value

measurement is

the assumed

loss rate

of the

underlying

residential

mortgage

loans that

collateralize

these obligations,

which

are guaranteed

by the

PRHFA.

A significant

increase (decrease) in

the assumed rate

would lead to

a (lower) higher

fair value estimate.

The fair value

of these bonds

was based on

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

the

debt

security.

The

Corporation

utilizes

PDs

and

LGDs that

consider,

among other

things, historical

payment performance,

loan-to value

attributes,

and relevant

current and

forward-

looking

macroeconomic

variables,

such

regional

unemployment

rates,

the

housing

price

index,

and

expected

recovery

the

PRHFA

guarantee. Under

this approach, expected

cash flows (interest and

principal) are discounted

at the Treasury

yield curve plus a

spread as of the reporting date and compared to the amortized cost.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

205

Additionally, fair value

is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.

As of December 31, 2022, the Corporation recorded losses or valuation adjustments

for assets recognized at fair value on a non-

recurring basis and still held at December 31, 2022, as shown in the following

table:

Carrying value as of December 31,

Related to losses recorded for the Year Ended

December 31,

2022

2021

2020

2022

2021

2020

(In thousands)

Level 3:

Loans receivable

(1)

11,437

31,534

74,197

(736)

(5,466)

(13,737)

OREO

(2)

5,461

9,126

50,248

(917)

(48)

(1,837)

Premises and equipment

(3)

1,242

(218)

Level 2:

Loans held for sale

12,306

(106)

(1)

Consists mainly

of collateral

dependent commercial

and construction

loans. The

Corporation generally

measured losses

based on the

fair value of

the collateral.

The Corporation derived

the fair values

from external appraisals

that took into

consideration prices in

observed transactions involving

similar assets

in similar locations

but adjusted for

specific characteristics and

assumptions of the collateral (e.g., absorption rates), which are

not market observable.

(2)

The Corporation

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

assets in

similar locations

but adjusted

for specific

characteristics and assumptions

of the properties (e.g.,

absorption rates and

net operating income of

income producing properties),

which are not market

observable. Losses were related

market valuation adjustments after the transfer of the loans to the

OREO portfolio.

(3)

Relates to a banking facility reclassified to held-for-sale and

measured at the fair value of the collateral.

Qualitative information regarding the fair value measurements for Level 3

financial instruments as of December 31, 2022 are as

follows:

December 31, 2022

Method

Inputs

Loans

Income, Market, Comparable

Sales, Discounted Cash Flows

External appraised values; probability weighting of broker price

opinions; management assumptions regarding market trends or other

relevant factors

OREO

Income, Market, Comparable

Sales, Discounted Cash Flows

External appraised values; probability weighting of broker price

opinions; management assumptions regarding market trends or other

relevant factors

Premises and equipment

Market

External appraised value

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

206

The following tables present the carrying value, estimated fair value and estimated

fair value level of the hierarchy of financial

instruments as of December 31, 2022 and 2021:

Total Carrying Amount

in Statement of

Financial Condition as

of December 31, 2022

Fair Value Estimate as of

December 31, 2022

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market

investments (amortized cost)

480,505

Available-for-sale debt securities (fair value)

5,599,520

138,875

5,452,150

8,495

Held-to-maturity debt securities (amortized

cost)

437,537

Less: ACL on held-to-maturity debt securities

(8,286)

Held-to-maturity debt securities, net of

ACL

429,251

427,115

260,106

167,009

Equity securities (amortized cost)

50,428

(1)

Other equity securities (fair value)

4,861

Loans held for sale (lower of cost or market)

12,306

Loans held for investment (amortized cost)

11,552,825

Less: ACL for loans and finance leases

(260,464)

Loans held for investment, net of ACL

11,292,361

11,106,809

MSRs (amortized cost)

29,037

44,710

Derivative assets (fair value)

(2)

633

Liabilities:

Deposits

(amortized cost)

16,143,467

16,139,937

Securities sold under agreements to repurchase

(amortized cost)

75,133

75,230

Advances from FHLB (amortized cost)

675,000

674,596

Other borrowings (amortized cost)

183,762

187,246

Derivative liabilities (fair value)

(2)

476

(1) Includes FHLB stock with a carrying value of $

42.9

million, which are considered restricted.

(2) Includes interest rate swap agreements, interest rate caps,

forward contracts, interest rate lock commitments, and forward loan

sales commitments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

207

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

2021

Fair Value Estimate as

of December 31, 2021

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market

investments (amortized cost)

2,543,058

Available-for-sale debt securities (fair value)

6,453,761

148,486

6,294,191

11,084

Held-to-maturity debt securities (amortized

cost)

178,133

Less: ACL on held-to-maturity debt securities

(8,571)

Held-to-maturity debt securities, net of

ACL

169,562

167,147

Equity securities (amortized cost)

26,791

(1)

Other equity securities (fair value)

5,378

Loans held for sale (lower of cost or market)

35,155

36,147

Loans held for investment (amortized cost)

11,060,658

Less: ACL for loans and finance leases

(269,030)

Loans held for investment, net of ACL

10,791,628

10,900,400

MSRs (amortized cost)

30,986

42,132

Derivative assets (fair value)

(2)

1,505

Liabilities:

Deposits (amortized cost)

17,784,894

17,800,706

Securities sold under agreements to repurchase

(amortized cost)

300,000

322,105

Advances from FHLB (amortized cost)

200,000

202,044

Other borrowings (amortized cost)

183,762

177,689

Derivative liabilities (fair value)

(2)

1,178

'(1) Includes FHLB stock with a carrying value of $

21.5

million, which are considered restricted.

(2) Includes interest rate swap agreements, interest rate caps,

forward contracts, interest rate lock commitments, and forward loan

sales commitments.

The short-term nature

of certain assets and

liabilities result in their

carrying value approximating

fair value. These include

cash and

cash

due

from

banks

and

other

short-term

assets,

such

FHLB

stock.

Certain

assets,

the

most

significant

being

premises

and

equipment,

goodwill

and

other

intangible

assets, are

not

considered

financial

instruments

and

are

not

included

above. Accordingly,

this fair

value

information

is not

intended

to, and

does not,

represent

the Corporation’s

underlying

value.

Many of

these assets

and

liabilities that

are subject

to the

disclosure requirements

are not

actively traded,

requiring management

to estimate

fair values.

These

estimates

necessarily

involve

the

use

assumptions

and

judgment

about

wide

variety

factors,

including

but

not

limited

to,

relevancy of market prices of comparable instruments, expected future cash flows,

and appropriate discount rates.

NOTE 26 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with

ASC Topic

606, “Revenue from

Contracts with Customers”

(“ASC Topic

606”), revenues are

recognized when

control

promised

goods

services

transferred

customers

and

amount

that

reflects

the

consideration

which

the

Corporation expects to be

entitled in exchange for those

goods or services. At contract

inception, once the contract is

determined to be

within the

scope of

ASC Topic

606, the

Corporation assesses

the goods

or services

that are

promised within

each contract,

identifies

the

respective

performance

obligations,

and

assesses

whether

each

promised

good

service

distinct.

The

Corporation

then

recognizes

as revenue

the amount

of the

transaction price

that is

allocated to

the respective

performance obligation

when (or

as) the

performance obligation is satisfied.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

208

Disaggregation of Revenue

The following

tables summarize

the Corporation’s

revenue, which

includes net

interest income

on financial

instruments and

non-

interest income, disaggregated by type of service and business segment for

the years ended December 31, 2022, 2021 and 2020:

Year ended December

31, 2022:

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

98,920

442,624

109,822

39,600

80,485

23,842

795,293

Service charges and fees on deposit accounts

21,906

12,412

607

2,898

37,823

Insurance commissions

12,733

995

13,743

Merchant-related income

6,622

1,483

1,335

9,514

Credit and debit card fees

29,061

(7)

1,763

30,902

Other service charges and fees

341

4,558

3,397

2,113

684

11,093

Not in scope of ASC Topic

606

(1)

15,609

3,577

812

(74)

20,017

Total non-interest income

15,950

78,457

18,189

(74)

2,860

7,710

123,092

Total Revenue

114,870

521,081

128,011

39,526

83,345

31,552

918,385

Year ended December

31, 2021:

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

104,638

281,703

191,917

59,331

65,967

26,373

729,929

Service charges and fees on deposit accounts

20,083

11,807

555

2,839

35,284

Insurance commissions

11,166

114

665

11,945

Merchant-related income

6,279

1,079

1,055

8,464

Credit and debit card fees

26,360

1,602

28,064

Other service charges and fees

771

4,185

2,640

1,825

556

9,977

Not in scope of ASC Topic

606

(1)

23,507

1,701

423

227

1,399

173

27,430

Total non-interest income

24,278

69,774

16,032

227

3,963

6,890

121,164

Total Revenue

128,916

351,477

207,949

59,558

69,930

33,263

851,093

Year ended December

31, 2020:

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

76,025

220,678

135,591

87,879

54,025

26,124

600,322

Service charges and fees on deposit accounts

13,286

8,026

553

2,747

24,612

Insurance commissions

8,754

558

9,364

Merchant-related income

4,516

478

809

5,844

Credit and debit card fees

18,218

1,469

19,765

Other service charges and fees

342

2,900

2,260

184

1,800

1,508

8,994

Not in scope of ASC Topic

606 (1) (2)

21,727

3,288

1,780

13,524

2,168

160

42,647

Total non-interest income

22,069

50,962

12,606

13,708

4,630

7,251

111,226

Total Revenue

98,094

271,640

148,197

101,587

58,655

33,375

711,548

(1)

Most of

the Corporation’s

revenue is

not within

the scope

of ASC

Topic

606. The

guidance explicitly

excludes net

interest income

from financial

assets and

liabilities, as well as other non-interest income from loans,

leases, investment securities and derivative financial instruments.

(2)

For the

year ended December

31, 2020, includes

a $

5.0

million benefit resulting

from the final

settlement of the

Corporation’s business

interruption insurance

claim

related to

lost

profits caused

by Hurricanes

Irma and

Maria in

2017.

This insurance

recovery is

presented as

part of

other

non-interest income

in the

consolidated statements of income.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

209

For

2022,

2021,

and

2020,

most

the

Corporation’s

revenue

within

the

scope

ASC

Topic

606

was

performance

obligations satisfied at a point in time.

The following is a discussion of the revenues under the scope of ASC Topic

606.

Service Charges and Fees on Deposit Accounts

Service

charges

and fees

on deposit

accounts

relate to

fees generated

from a

variety of

deposit products

and

services rendered

customers. Charges

primarily include,

but are not

limited to, overdraft

fees, insufficient

fund fees,

dormant fees,

and monthly

service

charges. Such

fees are recognized

concurrently with

the event at

the time of

occurrence or on

a monthly basis,

in the case

of monthly

service

charges.

These

depository

arrangements

are

considered

day-to-day

contracts

that

not

extend

beyond

the

services

performed, as customers have the right to terminate these contracts with no

penalty or, if any,

nonsubstantive penalties.

Insurance Commissions

For

insurance

commissions,

which

include

regular

and

contingent

commissions

paid

the

Corporation’s

insurance

agency,

the

agreements

contain

performance

obligation

the

sale/issuance

the

policy

and

ancillary

administrative

post-issuance

support.

The performance

obligations

are

satisfied

when

the policies

are

issued, and

revenue

is recognized

that point

time.

addition,

contingent

commission

income

may

considered

constrained,

defined

under

ASC

Topic

606.

Contingent

commission income is included

in the transaction price

only to the extent that

it is probable that a

significant reversal in the

amount of

cumulative revenue

recognized will

not occur

or payments

are received,

thus, is

recorded in

subsequent periods.

For the

years ended

December

31,

2022,

2021

and

2020,

the

Corporation

recognized

contingent

commission

income

the

time

that

payments

were

confirmed and constraints

were released of

3.2

million, $

3.3

million, and $

3.3

million, respectively,

which was related to

the volume

of insurance policies sold in the prior year.

Card and processing

income

Card and processing income includes merchant-related income, and

credit and debit card fees.

For

merchant-related

income,

the

determination

income

recognition

included

the

consideration

2015

sale

merchant

contracts

that

involved

sales

point

sale

(“POS”)

terminals

and

marketing

alliance

under

revenue-sharing

agreement.

The

Corporation

concluded

that

control

the

POS

terminals

and

merchant

contracts

was

transferred

the

customer

the

contract’s

inception.

With

respect

the

revenue-sharing

agreement,

the

Corporation

satisfies

the

marketing

alliance

performance

obligation over

the life of

the contract,

and recognizes the

associated transaction price

as the entity

performs and any

constraints over

the variable consideration are resolved.

Credit

and

debit

card

fees

primarily

represent

revenues

earned

from

interchange

fees

and

ATM

fees.

Interchange

and

network

revenues are earned on credit and

debit card transactions conducted with

payment networks. ATM

fees are primarily earned as a

result

of surcharges

assessed to

non-FirstBank customers

who use

a FirstBank

ATM.

Such fees

are generally

recognized concurrently

with

the delivery of services on a daily basis.

The

Corporation

offers

products,

primarily

credit

cards,

that

offer

various

rewards

reward

program

members,

such

airline

tickets, cash, or

merchandise, based

on account

activity.

The Corporation

generally recognizes the

cost of rewards

as part of

business

promotion

expenses when

the rewards

are earned

by the

customer and,

at that

time, records

the corresponding

reward liability.

The

Corporation

determines

the

reward

liability

based

points

earned

date

that

the

Corporation

expects

redeemed

and

the

average

cost

per

point

redemption.

The

reward

liability

reduced

points

are

redeemed.

estimating

the

reward

liability,

the

Corporation considers historical

reward redemption behavior,

the terms of the

current reward program,

and the card purchase

activity.

The reward liability

is sensitive to

changes in the

reward redemption

type and redemption

rate, which is

based on the

expectation that

the

vast

majority

all points

earned

will eventually

redeemed.

The

reward

liability,

which

is included

in other

liabilities in

the

consolidated statements of financial condition, totaled $

9.2

million and $

8.8

million as of December 31, 2022 and 2021, respectively.

Other Fees

Other fees primarily

include revenues generated

from wire transfers,

lockboxes, bank

issuances of checks

and trust fees

recognized

from

transfer

paying

agent,

retirement

plan,

and

other

trustee

activities.

Revenues

are

recognized

recurring

basis

when

the

services are rendered and are included as part of other non-interest income

in the consolidated statements of income.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

210

Contract Balances

contract

liability

entity’s

obligation

transfer

goods

services

customer

exchange

for

consideration

from

the

customer.

FirstBank

participates

merchant

revenue-sharing

agreement

with

another

entity

which

the

Bank

sold

its

merchant

contracts

portfolio

and

POS

terminals

and

growth

agreement

with

international

card

service

association

expand

the

customer

base

and

enhance

product

offerings.

FirstBank

recognizes

the

revenue

under

these

agreements

over

time,

the

Bank

completes its performance obligations.

The following table

shows the balances

of contract liabilities

recognized in relation

to these agreements

and the amount

of revenue

recognized for the years ended December 31, 2022, 2021 and 2020:

2022

2021

2020

(In thousands)

Beginning Balance

1,443

2,151

2,476

Less:

Revenue recognized

(602)

(708)

(325)

Ending balance

841

1,443

2,151

As of December 31, 2022 and 2021 there were

contract assets recorded on the Corporation’s

consolidated financial statements.

Other

Except for the contract liabilities noted above, the Corporation did not have

any significant performance obligations as of December

31, 2022.

The

Corporation

also

did

not

have

any

material contract

acquisition

costs

and

did

not

make

any

significant

judgments

estimates in recognizing revenue for financial reporting purposes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

211

NOTE 27 – SEGMENT INFORMATION

Based upon

the Corporation’s

organizational

structure and

the information

provided to

the Chief

Executive

Officer,

the operating

segments

are

based

primarily

the

Corporation’s

lines

business

for

its

operations

Puerto

Rico,

the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

December

31,

2022,

the

Corporation

had

six

reportable segments: Mortgage Banking;

Consumer (Retail) Banking; Commercial

and Corporate Banking; Treasury

and Investments;

United

States

Operations;

and

Virgin

Islands

Operations.

Management

determined

the

reportable

segments

based

the

internal

structure

used

evaluate

performance

and

assess

where

allocate

resources.

Other

factors,

such

the

Corporation’s

organizational

chart,

nature

the

products,

distribution

channels,

and

the

economic

characteristics

the

products,

were

also

considered in the determination of the reportable segments.

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage Banking

segment also

acquires and

sells mortgages

in the

secondary markets.

In addition,

the Mortgage

Banking segment

includes mortgage loans purchased from

other local banks and mortgage bankers.

The Consumer (Retail) Banking segment

consists of

the Corporation’s

consumer lending

and deposit-taking

activities conducted

mainly through

its branch

network and

loan centers.

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 public

sector.

The Commercial

and Corporate

Banking segment

offers commercial

loans,

including

commercial

real

estate

and

construction

loans,

and

floor

plan

financings,

well

other

products,

such

cash

management

and

business

management

services.

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

manage

and

enhance

liquidity.

This

segment

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking,

and

the

United

States

Operations

segments

finance

their

lending

activities

and

borrows

from

those

segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

Treasury

and Investments

and the

Consumer (Retail)

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

interest income

or expense

and the Corporation’s

actual

net

interest income

from

centralized

management

of funding

costs is

reported

in the

Treasury

and Investments

segment.

The

United States

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

United States

mainland,

including

commercial and consumer banking

services. The Virgin

Islands Operations segment consists of all

banking activities conducted by the

Corporation in the USVI and BVI, including commercial and consumer banking

services.

The

accounting

policies

the

segments

are

the

same

those

referred

Note

–

Nature

Business

and

Summary

Significant Accounting Policies.

The

Corporation

evaluates

the

performance

the

segments

based

net

interest

income,

the

provision

for

credit

losses,

non-

interest

income

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

the

average

volume

their

interest-

earning assets less the ACL.

The following tables present information about the reportable segments for the indicated periods:

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

For the year ended December 31, 2022:

Interest income

130,185

302,631

205,888

104,215

94,782

24,913

862,614

Net (charge) credit for transfer of funds

(31,265)

173,917

(96,066)

(43,838)

(2,748)

Interest expense

(33,924)

(20,777)

(11,549)

(1,071)

(67,321)

Net interest income

98,920

442,624

109,822

39,600

80,485

23,842

795,293

Provision for credit losses - (benefit) expense

(7,643)

57,123

(20,241)

(434)

(3,073)

1,964

27,696

Non-interest income (loss)

15,950

78,457

18,189

(74)

2,860

7,710

123,092

Direct non-interest expenses

23,049

162,663

37,131

3,702

33,365

27,911

287,821

Segment income

99,464

301,295

111,121

36,258

53,053

1,677

602,868

Average earnings assets

2,233,245

2,918,800

3,626,107

7,300,208

2,069,030

369,504

18,516,894

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

212

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

For the year ended December 31, 2021:

Interest income

144,203

271,127

201,684

67,841

82,194

27,659

794,708

Net (charge) credit for transfer of funds

(39,565)

38,859

(9,767)

14,687

(4,214)

Interest expense

(28,283)

(23,197)

(12,013)

(1,286)

(64,779)

Net interest income

104,638

281,703

191,917

59,331

65,967

26,373

729,929

Provision for credit losses - (benefit) expense

(16,030)

20,322

(67,544)

(136)

(975)

(1,335)

(65,698)

Non-interest income

24,278

69,774

16,032

227

3,963

6,890

121,164

Direct non-interest expenses

29,125

165,357

36,219

4,093

33,902

28,084

296,780

Segment income

115,821

165,798

239,274

55,601

37,003

6,514

620,011

Average earnings assets

2,506,365

2,551,278

3,793,945

7,827,326

2,126,528

430,499

19,235,941

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

For the year ended December 31, 2020:

Interest income

128,043

240,725

155,254

55,003

84,169

29,788

692,982

Net (charge) credit for transfer of funds

(52,018)

18,771

(19,663)

59,074

(6,164)

Interest expense

(38,818)

(26,198)

(23,980)

(3,664)

(92,660)

Net interest income

76,025

220,678

135,591

87,879

54,025

26,124

600,322

Provision for credit losses - expense

22,518

54,094

74,607

2,774

12,592

4,400

170,985

Non-interest income

22,069

50,962

12,606

13,708

4,630

7,251

111,226

Direct non-interest expenses

33,054

131,133

28,631

3,449

33,782

28,815

258,864

Segment income

42,522

86,413

44,959

95,364

12,281

160

281,699

Average earnings assets

2,241,753

2,202,595

3,039,786

4,232,144

2,026,619

458,608

14,201,505

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:

Year Ended

December 31,

2022

2021

2020

(In thousands)

Net income:

Total income for segments

602,868

620,011

281,699

Other operating expenses

(1)

155,284

192,194

165,376

Income before income taxes

447,584

427,817

116,323

Income tax expense

142,512

146,792

14,050

Total consolidated net income

305,072

281,025

102,273

Average assets:

Total average earning assets for segments

18,516,894

19,235,941

14,201,505

Average non-earning assets

861,755

1,067,092

1,031,141

Total consolidated average assets

19,378,649

20,303,033

15,232,646

(1)

Expenses pertaining to corporate administrative functions that support

the operating segment, but are not specifically attributable

to or managed by any segment, are not included in the

reported financial results of the operating segments. The

unallocated corporate expenses include certain general and administrative

expenses and related depreciation and amortization

expenses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

213

The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on the

location in which the transaction was originated as of indicated dates:

2022

2021

2020

(In thousands)

Revenues:

Puerto Rico

855,441

795,166

678,370

United States

97,642

86,157

88,799

Virgin Islands

32,623

34,549

37,039

Total consolidated revenues

985,706

915,872

804,208

Selected Balance Sheet Information:

Total assets:

Puerto Rico

16,020,987

18,175,910

16,091,112

United States

2,213,333

2,189,440

2,117,966

Virgin Islands

400,164

419,925

583,993

Loans:

Puerto Rico

9,097,013

8,755,434

9,367,032

United States

2,088,351

1,948,716

1,993,797

Virgin Islands

379,767

391,663

466,749

Deposits:

Puerto Rico

(1)

12,933,570

14,113,874

12,338,934

United States

(2)

1,623,725

1,928,749

1,622,481

Virgin Islands

1,586,172

1,742,271

1,355,968

(1)

For 2022, 2021, and 2020, includes $

1.4

million, $

34.2

million, and $

109.0

million, respectively, of brokered CDs allocated

to Puerto Rico operations.

(2)

For 2022, 2021, and 2020 includes $

104.4

million, $

66.2

million, and $

107.1

million, respectively, of brokered CDs

allocated to United States operations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

214

NOTE 28 – SUPPLEMENTAL

STATEMENT

OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information is as follows for the indicated

periods:

Year Ended

December 31,

2022

2021

2020

(In thousands)

Cash paid for:

Interest on borrowings

65,986

68,668

94,872

Income tax

51,798

15,477

16,713

Operating cash flow from operating leases

18,202

19,328

13,464

Non-cash investing and financing activities:

Additions to OREO

15,350

19,348

7,249

Additions to auto and other repossessed assets

45,607

33,408

36,203

Capitalization of servicing assets

3,122

5,194

4,864

Loan securitizations

141,909

191,434

221,491

Loans held for investment transferred to held for sale

4,632

33,010

10,817

Payable related to unsettled purchases of available-for-sale investment securities

24,033

ROU asset obtained in exchange for operating lease liabilities

2,733

4,553

1,328

Acquisition

(1)

Consideration

584

1,280,424

Fair value of assets acquired

605

5,561,564

Liabilities assumed

4,291,674

(1)

Recognized in connection with the BSPR acquisition on September

1, 2020.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

215

NOTE 29 – REGULATORY

MATTERS, COMMITMENTS,

AND CONTINGENCIES

Regulatory Matters

The

Corporation

and

FirstBank

are

each

subject

various

regulatory

capital

requirements

imposed

the

U.S.

federal

banking

agencies. Failure

to meet

minimum capital

requirements can

result in

certain mandatory

and possibly

additional discretionary

actions

by regulators

that, if

undertaken, could

have a

direct material

adverse effect

on the

Corporation’s

financial statements

and activities.

Under

capital

adequacy

guidelines

and

the

regulatory

framework

for

prompt

corrective

action,

the

Corporation

must

meet

specific

capital

guidelines

that

involve

quantitative

measures

the Corporation’s

and

FirstBank’s

assets,

liabilities,

and

certain

off-balance

sheet items

as calculated

under regulatory

accounting practices.

The Corporation’s

capital amounts

and classification

are also

subject

to qualitative judgments and

adjustment by the regulators with respect

to minimum capital requirements, components,

risk weightings,

and other factors.

As of December

31, 2022 and 2021,

the Corporation and

FirstBank exceeded the

minimum regulatory capital

ratios

for

capital

adequacy

purposes

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

considered

well

capitalized

institution under

the regulatory framework

for prompt corrective

action. As of

December 31, 2022,

management does not

believe that

any condition has changed or event has occurred that would have changed

the institution’s status.

The Corporation and FirstBank

compute risk-weighted assets

using the standardized approach

required by the U.S.

Basel III capital

rules (“Basel III rules”).

The

Basel

III

rules

require

the

Corporation

maintain

additional

capital

conservation

buffer

2.5

certain

regulatory

capital

ratios

avoid

limitations

both

(i)

capital

distributions

(

e.g.

repurchases

capital

instruments,

dividends

and

interest

payments on capital instruments) and (ii) discretionary bonus payments

to executive officers and heads of major business lines.

As part

of its

response to

the impact

of COVID-19,

on March

31, 2020,

the federal

banking agencies

issued an

interim final

rule

that

provided

the

option

temporarily

delay

the

effects

CECL

regulatory

capital

for

two

years,

followed

three-year

transition period.

The interim final

rule provides

that, at the

election of

a qualified

banking organization,

the day 1

impact to retained

earnings plus

% of the change

in the ACL (as

defined in the final

rule) from January 1,

2020 to December

31, 2021 will be

delayed

for

two

years

and

phased-in

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition

period

five

years.

Accordingly,

December

31,

2022,

the

capital

measures

the

Corporation

and

the

Bank

included

16.2

million associated

with the

CECL day

one impact

to retained

earnings plus

% of

the increase

in the

ACL (as

defined in

the

interim final rule) from January 1,

2020 to December 31, 2021,

and $

48.6

million remains excluded to be phase-in

during the next two

years.

The

federal

financial

regulatory

agencies

may

take

other

measures

affecting

regulatory

capital

address

the

COVID-19

pandemic and related macroeconomic conditions, although the nature

and impact of such actions cannot be predicted at this time.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

216

The regulatory capital position of

the Corporation and the Bank as

of December 31, 2022,

and 2021, which reflects the delay

in the

effect of CECL on regulatory capital, were as follows:

Regulatory Requirements

Actual

For Capital Adequacy Purposes

To be Well

-Capitalized

Thresholds

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of December 31, 2022

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,385,866

19.21

993,405

8.0

N/A

FirstBank

2,346,093

18.90

993,264

8.0

1,241,580

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,052,333

16.53

558,790

4.5

N/A

FirstBank

2,090,832

16.84

558,711

4.5

807,027

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,052,333

16.53

745,054

6.0

N/A

FirstBank

2,190,832

17.65

744,948

6.0

993,264

8.0

Leverage ratio

First BanCorp.

2,052,333

10.70

767,075

4.0

N/A

FirstBank

2,190,832

11.43

766,714

4.0

958,392

5.0

As of December 31, 2021

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,433,953

20.50

949,637

8.0

N/A

FirstBank

2,401,390

20.23

949,556

8.0

1,186,944

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,112,630

17.80

534,171

4.5

N/A

FirstBank

2,150,317

18.12

534,125

4.5

771,514

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,112,630

17.80

712,228

6.0

N/A

FirstBank

2,258,317

19.03

712,167

6.0

949,556

8.0

Leverage ratio

First BanCorp.

2,112,630

10.14

833,091

4.0

N/A

FirstBank

2,258,317

10.85

832,773

4.0

1,040,967

5.0

Cash Restrictions

The Corporation’s

bank subsidiary,

FirstBank, is

required by

the Puerto

Rico Banking

Law to

maintain minimum

average weekly

reserve balances to

cover demand deposits.

The amount of those

minimum average weekly

reserve balances for

the period that

ended

December 31,

2022

was

1.1

billion

(2021

1.2

billion).

December 31,

2022

and

2021,

the

Bank

complied

with

the

requirement.

Cash

and

due

from

banks

well

other

highly

liquid

securities

are

used

cover

the

required

average

reserve

balances.

As of December

31, 2022, and

as required by

the Puerto Rico

International Banking

Law,

the Corporation maintained

0.3

million

in time deposits, related to FirstBank Overseas Corporation, an international

banking entity that is a subsidiary of FirstBank.

Commitments

The

Corporation’s

exposure

credit

loss

the

event

nonperformance

the

other

party

the

financial

instrument

commitments to extend credit

and standby letters of credit

is represented by the contractual amount

of those instruments. Management

uses the same

credit policies

and approval process

in entering into

commitments and

conditional obligations

as it does

for on-balance

sheet instruments.

Commitments to extend

credit are agreements

to lend to

a customer as long

as there is no

violation of any

conditions established in

the contract. Commitments generally have fixed expiration

dates or other termination clauses. Since certain commitments

are expected

to expire

without being drawn

upon, the

total commitment

amount does not

necessarily represent

future cash requirements.

For most

of the commercial

lines of credit, the

Corporation has the

option to reevaluate

the agreement prior

to additional disbursements.

In the

case of credit cards and personal lines of credit, the Corporation can cancel the unused

credit facility at any time and without cause.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

217

general,

commercial

and

standby

letters

credit

are

issued

facilitate

foreign

and

domestic

trade

transactions.

Normally,

commercial and standby

letters of credit

are short-term commitments

used to finance

commercial contracts for

the shipment of goods.

The

collateral

for

these

letters

credit

includes

cash

available

commercial

lines

credit.

The

fair

value

commercial

and

standby letters

of credit

is based

on the

fees currently

charged for

such agreements,

which, as

of December 31,

2022 and

2021, were

not significant.

The following table summarizes commitments to extend credit and standby letters of

credit as of the indicated dates:

December 31,

2022

2021

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

170,639

197,917

Unused personal lines of credit

978,219

1,180,824

Commercial lines of credit

761,634

725,259

Letters of credit:

Commercial letters of credit

68,647

151,140

Standby letters of credit

9,160

4,342

Contingencies

As of

December 31,

2022, First

BanCorp. and

its subsidiaries

were defendants

in various

legal proceedings,

claims and

other loss

contingencies

arising

the

ordinary

course

business.

least

quarterly

basis,

the

Corporation

assesses

its

liabilities

and

contingencies in connection

with threatened and

outstanding legal proceedings,

claims and other

loss contingencies utilizing

the latest

information

available. For

legal proceedings,

claims and

other loss

contingencies

where it

is both

probable that

the Corporation

will

incur

loss

and

the

amount

can

reasonably

estimated,

the

Corporation

establishes

accrual

for

the

loss.

Once

established,

the

accrual

adjusted

appropriate

reflect

any

relevant

developments.

For

legal

proceedings,

claims

and

other

loss

contingencies

where a loss is not probable or the amount of the loss cannot be estimated, no accrual

is established.

Any estimate

involves significant

judgment, given

the varying

stages of

the proceedings

(including the

fact that

some of

them are

currently in

preliminary stages),

the existence

in some

of the

current proceedings

of multiple

defendants whose

share of

liability has

yet

determined,

the

numerous

unresolved

issues

the

proceedings,

and

the

inherent

uncertainty

the

various

potential

outcomes of such proceedings.

Accordingly,

the Corporation’s

estimate will change from

time-to-time, and actual

losses may be more

or less than the current estimate.

While

the

final

outcome

legal

proceedings,

claims,

and

other

loss

contingencies

inherently

uncertain,

based

information

currently

available,

management

believes

that

the

final

disposition

the

Corporation’s

legal

proceedings,

claims

and

other

loss

contingencies,

the

extent

not

previously

provided

for,

will

not

have

material

adverse

effect

the

Corporation’s

consolidated

financial position as a whole.

If management believes that, based on available information,

it is at least reasonably possible that a material loss (or material

loss in

excess

any

accrual)

will

incurred

connection

with

any

legal

contingencies,

the

Corporation

discloses

estimate

the

possible loss or

range of loss,

either individually or

in the aggregate,

as appropriate, if

such an estimate can

be made, or

discloses that

an estimate cannot be made. Based on the Corporation’s

assessment as of December 31, 2022, no such disclosures were necessary.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

218

NOTE 30- FIRST BANCORP.

(HOLDING COMPANY

ONLY) FINANCIAL

INFORMATION

The following

condensed financial information

presents the financial

position of

First BanCorp.

at the holding

company level only

as of December 31, 2022

and 2021, and the

results of its operations

and cash flows for

the years ended December

31, 2022, 2021, and

2020:

Statements of Financial Condition

As of December 31,

2022

2021

(In thousands)

Assets

Cash and due from banks

19,279

20,751

Other investment securities

735

285

Investment in First Bank Puerto Rico, at equity

1,464,026

2,247,289

Investment in First Bank Insurance Agency,

at equity

28,770

19,521

Investment in FBP Statutory Trust I

1,951

Investment in FBP Statutory Trust II

3,561

Dividends receivable

624

295

Other assets

430

Total assets

1,519,376

2,293,724

Liabilities and Stockholders' Equity

Liabilities:

Other borrowings

183,762

Accounts payable and other liabilities

10,074

8,195

Total liabilities

193,836

191,957

Stockholders' equity

1,325,540

2,101,767

Total liabilities and stockholders'

equity

1,519,376

2,293,724

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

219

Statements of Income

Year

Ended December 31,

2022

2021

2020

(In thousands)

Income

Interest income on money market investments

Dividend income from banking subsidiaries

368,670

98,060

52,707

Dividend income from non-banking subsidiaries

30,000

Other income

248

154

439

Total income

368,997

128,265

53,217

Expense

Other borrowings

8,253

5,135

6,355

Other operating expenses

1,730

1,929

2,097

Total expense

9,983

7,064

8,452

Gain on early extinguishment of debt

Income before income taxes and equity

in undistributed earnings of subsidiaries

359,014

121,201

44,859

Income tax expense

3,448

2,854

2,429

Equity in undistributed earnings of subsidiaries (distribution in excess of

earnings)

(50,494)

162,678

59,843

Net income

305,072

281,025

102,273

Other comprehensive (loss) income, net of tax

(720,779)

(139,454)

48,691

Comprehensive (loss) income

(415,707)

141,571

150,964

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

220

Statements of Cash Flows

Year Ended December 31,

2022

2021

2020

(In thousands)

Cash flows from operating activities:

Net income

305,072

281,025

102,273

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation

148

149

231

Equity in undistributed earnings of subsidiaries

50,494

(162,678)

(59,843)

Gain on early extinguishment of debt

(94)

Net decrease (increase) in other assets

(688)

1,657

(1,514)

Net increase (decrease) in other liabilities

1,545

3,578

(459)

Net cash provided by operating activities

356,571

123,731

40,594

Cash flows from investing activities:

Purchase of equity securities

(450)

Return of capital from wholly-owned subsidiaries

(1)

8,000

200,000

Net cash provided by investing activities

7,550

200,000

Cash flows from financing activities:

Repurchase of common stock

(277,769)

(216,522)

(206)

Repayment of junior subordinated debentures

(282)

Dividends paid on common stock

(87,824)

(65,021)

(43,416)

Dividends paid on preferred stock

(2,453)

(2,676)

Redemption of preferred stock - Series A through E

(36,104)

Net cash used in financing activities

(365,593)

(320,100)

(46,580)

Net (decrease) increase in cash and cash equivalents

(1,472)

3,631

(5,986)

Cash and cash equivalents at beginning of the year

20,751

17,120

23,106

Cash and cash equivalents at end of year

19,279

20,751

17,120

Cash and cash equivalents include:

Cash and due from banks

19,279

20,751

10,909

Money market instruments

6,211

19,279

20,751

17,120

(1)

During 2022, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed

0.3

million shares of its preferred stock for a total price of

approximately $

8.0

million.

During 2021, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed

million shares of its

preferred stock for a total price of approximately $

200

million.

221

Item 9. Changes in and Disagreements with Accountants on Accounting

and

Financial Disclosures

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

First

BanCorp.’s

management,

including

its

Chief

Executive

Officer

and

Chief

Financial

Officer,

evaluated

the

effectiveness

First BanCorp.’s

disclosure

controls and

procedures

(as defined

in Rule

13a-15(e) and

15d-15(e) under

the Exchange

Act) as

of the

end of the

period covered by

this Annual Report

on Form 10-K.

Based on this evaluation

as of the period

covered by this Form

10-K,

our

CEO

and

CFO

concluded

that

the

Corporation’s

disclosure

controls

and

procedures

were

effective

and

provide

reasonable

assurance

that the

information

required to

be disclosed

by the

Corporation in

reports that

the Corporation

files or

submits under

the

Exchange

Act

recorded,

processed,

summarized

and

reported

within

the

time

periods

specified

SEC

rules

and

forms

and

accumulated

and

reported

the

Corporation’s

management,

including

the

CEO and

CFO, as

appropriate

allow

timely

decisions

regarding required disclosure.

Management’s Report on Internal Control

over Financial Reporting

Management’s

Report on Internal Control over Financial

Reporting is included in Item 8 of

this Form 10-K and incorporated herein

by reference.

The effectiveness of the Corporation’s

internal control over financial reporting as of December

31, 2022 has been audited by Crowe

LLP,

an independent registered

public accounting firm,

as stated in

their report included

in Item 8

of this Annual

Report on Form

10-

Changes in Internal Control over Financial Reporting

There have

been no

changes to

the Corporation’s

internal control

over financial

reporting (as

defined in

Rules 13a-15(f)

and 15d-

15(f)

under

the

Exchange

Act)

during

our

most

recent

quarter

ended

December

31,

2022

that

have

materially

affected,

are

reasonably likely to materially affect, the Corporation’s

internal control over financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

222

PART

III

Item 10. Directors, Executive Officers and Corporate Governance

Information

response

this

item

incorporated

herein

reference

from

the

sections

entitled

“Information

With

Respect

Nominees Standing for Election as

Directors and With Respect

to Executive Officers of the

Corporation,” “Corporate Governance and

Related Matters,”

“Delinquent Section

16(a) Reports”

and “Audit

Committee Report”

contained in

First BanCorp.’s

definitive Proxy

Statement for use

in connection with its

2023 Annual Meeting

of Stockholders (the “2023

Proxy Statement”) to

be filed with the

SEC

within 120 days of December 31, 2022.

Item 11. Executive Compensation.

Information

response

this

item

incorporated

herein

reference

from

the

sections

entitled

“Compensation

Committee

Interlocks

and

Insider

Participation,”

“Compensation

Directors,”

“Non-Management

Chairman

and

Specialized

Expertise,”

“Executive Compensation Disclosure –

Compensation Discussion and Analysis,” “Executive

Compensation Tables

and Compensation

Information” and “Compensation Committee Report” in the 2023 Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Securities authorized for issuance under equity compensation plans

The following table sets forth information about First BanCorp. common stock

authorized for issuance under First BanCorp.’s

existing equity compensation plan as of December 31, 2022:

Plan category

(a)

Number of Securities to

be Issued Upon Exercise

of Outstanding Options,

Warrants and Rights

(b)

Weighted Average Exercise

Price of Outstanding

Options, Warrants and

Rights

(c)

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation

Plans (Excluding

Securities Reflected in

Column (a))

Equity compensation plans, approved by stockholders

791,923

(1)

3,830,165

(2)

Equity compensation plans not approved by stockholders

N/A

Total

791,923

3,830,165

(1)

Amount represents unvested performance-based

units granted to executives, with each

unit representing one share of the

Corporation's common stock.

Performance shares will vest on

the

achievement of

a pre-established

performance target

goal at

the end

of a

three-year performance

period.

Refer to

Note 16

- "Stock-Based

Compensation" of

the Notes

to Consolidated

Financial Statements for more information

on performance units.

(2)

Securities available for future issuance under the First BanCorp.

2008 Omnibus Incentive Plan (the "Omnibus Plan"), which

was initially approved by stockholders on April 29,

2008. Most

recently,

on May

24, 2016,

the Omnibus

Plan was

amended to,

among other

things, increase

the number

of shares

of common

stock reserved

for issuance

under the

Omnibus Plan

and

extend the term of

the Omnibus Plan to

May 24, 2026. The

Omnibus Plan provides for

equity-based compensation incentives

through the grant of

stock options, stock

appreciation rights,

restricted stock, restricted

stock units, performance

shares, and other

stock-based awards. As

amended, the Omnibus

Plan provides for the

issuance of up to

14,169,807 shares of common

stock, subject to adjustments for stock splits, reorganization

and other similar events.

Additional

information

response

this

item

incorporated

reference

from

the

section

entitled

“Security

Ownership

Certain Beneficial Owners and Management” in the 2023 Proxy

Statement.

Item 13. Certain Relationships and Related Transactions,

and Director Independence

Information in response to this item is incorporated herein by reference

from the sections entitled “Certain Relationships and Related

Person Transactions” and “Corporate

Governance and Related Matters” in the 2023 Proxy Statement.

223

Item 14. Principal Accountant Fees and Services.

Audit Fees

Information

response

this

item

incorporated

herein

reference

from

the

section

entitled

“Audit

Fees”

and

“Audit

Committee Report” in the 2023 Proxy Statement.

PART

Item 15. Exhibits and Financial Statement Schedules

(a) List of documents filed as part of this report.

(1)

Financial Statements.

The

following

consolidated

financial

statements

First

BanCorp.,

together

with

the

reports

thereon

First

BanCorp.’s

independent registered

public accounting

firm, Crowe LLP

(PCAOB ID No.

173),

dated February 28,

2023, are included

in Item 8

this Annual Report on Form 10-K:

– Report of Crowe LLP,

Independent Registered Public Accounting Firm.

–

Attestation Report of Crowe LLP,

Independent Registered Public Accounting Firm on Internal Control over

Financial

Reporting.

–Consolidated Statements of Financial Condition as of December

31, 2022 and 2021.

–Consolidated Statements of Income for Each of the Three Years

in the Period Ended December 31, 2022.

– Consolidated Statements of Comprehensive (Loss) Income for

Each of the Three Years

in the Period Ended December 31,

2022.

– Consolidated Statements of Cash Flows for Each of the Three Years

in the Period Ended December 31, 2022.

– Consolidated Statements of Changes in Stockholders’ Equity for

Each of the Three Years

in the Period Ended December 31,

2022.

– Notes to the Consolidated Financial Statements.

(2) Financial statement schedules.

All financial schedules have been omitted because they are not applicable or

the required information is shown in the financial

statements or notes thereto.

(b) Exhibits listed in the Exhibit Index below are filed herewith as part of this Annual Report on

Form 10-K and are incorporated

herein by reference.

Item 16. Form 10-K Summary

Not applicable.

224

EXHIBIT INDEX

Exhibit No.

Description

3.1

Restated Articles of Incorporation, incorporated by reference from Exhibit 3.1 of the Registration Statement on Form S-

1/A, filed on October 20, 2011.

3.2

Amended and Restated By-Laws, incorporated by reference from Exhibit 3.2 of the Form 8-K, filed on March 31, 2020.

4.1

Description of First BanCorp. capital stock.

10.1*

First BanCorp Omnibus Incentive Plan, as amended, incorporated by reference from Exhibit 99.1 of the Form S-8, filed on

June 21, 2016.

10.2*

10.3*

10.4*

Form of Restricted Stock Award Agreement

Form of First BanCorp Long-Term Incentive Award Agreement, incorporated by reference from Exhibit 10.1 of the Form

10-Q for the quarter ended March 31, 2018, filed on May 10, 2018.

Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from Exhibit 10.6- of the

Form 10-K for the year ended December 31, 1998, filed on March 26, 1999.

10.5*

Amendment No. 1 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from

Exhibit 10.2 of the Form 10-Q for the quarter ended March 31, 2009, filed on May 11, 2009.

10.6*

Amendment No. 2 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from

Exhibit 10.6 of the Form 10-K for the year ended December 31, 2009, filed on March 2, 2010.

10.7*

Employment Agreement between First BanCorp and Orlando Berges, incorporated by reference from Exhibit 10.1 of the

Form 10-Q for the quarter ended June 30, 2009, filed on August 11, 2009.

10.8*

Letter Agreement between First BanCorp. and Roberto R. Herencia, incorporated by reference from Exhibit 10.1 of the

Form 8-K/A, filed on November 2, 2011.

10.9*

Offer Letter between First BanCorp and Juan Acosta Reboyras, incorporated by reference from Exhibit 10.1 of the Form 8-

K, filed on September 3, 2014.

10.10*

Offer Letter between First BanCorp and Luz A. Crespo, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed

on February 9, 2015.

10.11*

Offer Letter between First BanCorp and John A. Heffern, incorporated by reference from Exhibit 10.1 of the Form 8-K,

filed on November 1, 2017.

10.12*

Offer Letter between First BanCorp and Daniel E. Frye, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed

on August 31, 2018.

10.13*

Offer Letter between First BanCorp and Félix M. Villamil, incorporated by reference from Exhibit 10.1 of the Form 8-K,

filed on November 5, 2020.

10.14*

Offer Letter between First BanCorp and Patricia M. Eaves, incorporated by reference from Exhibit 10.1 of the Form 8-K,

filed on April 1, 2021.

10.15*

Form of Executive Employment Agreement executed by each executive officer, incorporated by reference from Exhibit

10.1 of the Form 10-Q for the quarter ended June 30, 2018, filed on August 9, 2018.

10.16*

Revised

Non-Management and Non-

Employee

Directors of the Board of Directors Compensation Structure,

incorporated

by reference from Exhibit 10.1 of the Form 10-Q for the quarter

ended September 30, 2022, filed on November 8,

2022.

18.1

Preferability letter from Crowe, LLP regarding a change in accounting method dated November 8, 2022, incorporated by

reference form Exhibit 18 of the Form 10-Q for the quarter ended September 30, 2022, filed on November 8, 2022.

21.1

List of First BanCorp’s subsidiaries

23.1

Consent of Crowe LLP

31.1

CEO

Certification pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002

31.2

CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

32.2

CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

101.INS

Inline XBRL Instance Document, filed herewith. The

instance document does not appear in the interactive

data file because

its XBRL tags are embedded within the inline XBRL

document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document, filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith

104

The cover page of First BanCorp. Annual Report on Form

10-K for the year ended December 31, 2022, formatted in

Inline

XBRL (included within the Exhibit 101 attachments)

_____________________________

*Management contract or compensatory plan or agreement.

225

SIGNATURES

Pursuant to the requirements of

the Securities Exchange Act of

1934, the Corporation has

duly caused this report to

be signed on its behalf

by the

undersigned hereunto duly authorized.

FIRST BANCORP.

By:

/s/ Aurelio Alemán

Date: 2/28/2023

Aurelio Alemán

President, Chief Executive Officer and Director

Pursuant

the

requirements

the

Securities

Exchange

Act

1934,

this

report

has

been

signed

the

following

persons

behalf

the

registrant and in the capacities and on the dates indicated.

/s/ Aurelio Alemán

Date: 2/28/2023

Aurelio Alemán

President, Chief Executive Officer and Director

/s/ Orlando Berges

Date: 2/28/2023

Orlando Berges, CPA

Executive Vice President and Chief Financial Officer

/s/ Roberto R. Herencia

Date: 2/28/2023

Roberto R. Herencia,

Director and Chairman of the Board

/s/ Patricia M. Eaves

Date: 2/28/2023

Patricia M. Eaves,

Director

/s/ Luz A. Crespo

Date: 2/28/2023

Luz A. Crespo,

Director

/s/ Juan Acosta-Reboyras

Date: 2/28/2023

Juan Acosta-Reboyras,

Director

/s/ John A. Heffern

Date: 2/28/2023

John A. Heffern,

Director

/s/ Daniel E. Frye

Date: 2/28/2023

Daniel E. Frye,

Director

/s/ Tracey Dedrick

Date: 2/28/2023

Tracey Dedrick,

Director

/s/ Felix Villamil

Date: 2/28/2023

Felix Villamil,

Director

/s/ Said Ortiz

Date: 2/28/2023

Said Ortiz, CPA

Senior Vice President and Chief Accounting Officer