10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K/A

Amendment No. 1

(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

or

[ ]

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

☑

No

☐

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

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

☐

No

☑

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

☑

No

☐

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

☑

No

☐

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

☐

No

☑

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.

2

Explanatory Note

First BanCorp. (the “Corporation”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) solely to correct clerical

errors in the EDGARized version of the report titled “Report of the Independent Registered Public Accounting Firm” (the “Audit

Report”) provided by Crowe LLP (“Crowe”) in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December

31, 2022, as filed on February 28, 2023 (the “Original Annual Report”). The Audit Report in this Amendment is revised as follows:

the addressee is changed from stockholders to shareholders, the subtitle of the section titled “Critical Audit Matter” is changed from

“Allowance for Credit Losses – Model and Macroeconomic Variables” to “Allowance for Credit Losses – Economic Forecasts and

Macroeconomic Variables”, and the description of the critical audit matter assessment performed is updated to remove the reference to

the model design and construction related to ACL. These revisions were inadvertently omitted in the EDGARized Audit Report

included in the Original Annual Report and do not impact the opinion rendered on the financial statements as of December 31, 2022.

Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this

Amendment includes: Item 8 of Part II, “Financial Statements and Supplementary Data” in its entirety and without change from the

Original Annual Report other than the corrections of the clerical errors in the Audit Report discussed above; and Item 15 of Part IV,

including new certifications by our principal executive officer and principal financial officer.

This Amendment does not change any previously reported financial results or otherwise amend the Original Annual Report as

previously filed, except as discussed above. Furthermore, this Amendment does not update or otherwise amend the Original Annual

Report as originally filed for changes in events, estimates or other developments subsequent to the date of the filing of the Original

Annual Report on February 28, 2023. This Amendment should be read in conjunction with the Original Annual Report and our other

filings with the Securities and Exchange Commission.

3

Item 8. Financial Statements and Supplementary Data

FIRST BANCORP.

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

(PCAOB No.

173

)….…………………………..

4

Management’s Report on Internal Control over Financial Reporting

…………………………………………

6

Consolidated Statements of Financial Condition

……………………………………………………………...

7

Consolidated Statements of Income

……...…………………………………………………………………...

8

Consolidated Statements of Comprehensive (Loss) Income

……...………………………………………..…

9

Consolidated Statements of Cash Flows

………………………………………………………………………

10

Consolidated Statements of Changes in Stockholders’ Equity

………………………………………………..

11

Notes to Consolidated Financial Statements

…………………………………………………………………..

13

4

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors

of First BanCorp.

San Juan, Puerto Rico

Opinions on the Financial Statements and Internal Control

over Financial Reporting

We

have

audited

the

accompanying

consolidated

statements

of

financial

condition

of

First

BanCorp.

(the

"Company")

as

of

December 31, 2022 and 2021, the related consolidated

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

changes in

stockholders’

equity

for

each

of

the

years

in

the

three-year

period

ended

December

31,

2022,

and

the

related

notes

(collectively

referred

to

as

the

"financial

statements").

We

also

have

audited

the

Company’s

internal

control

over

financial

reporting

as

of

December

31,

2022,

based

on

criteria

established

in

Internal

Control

–

Integrated

Framework:

(2013)

issued

by

the

Committee

of

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

is

responsible

for

these

financial

statements,

for

maintaining

effective

internal

control

over

financial

reporting,

and

for

its

assessment

of

the

effectiveness

of

internal

control

over

financial

reporting,

included

in

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.

We

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

of

the

financial

statements

included

performing

procedures

to

assess

the

risks

of

material

misstatement

of

the

financial

statements, whether due to error or fraud,

and performing procedures that respond to

those risks. Such procedures included examining,

on

a

test basis,

evidence

regarding

the

amounts

and

disclosures

in

the

financial

statements.

Our

audits

also

included

evaluating

the

accounting

principles

used

and

significant

estimates

made

by

management,

as

well

as

evaluating

the

overall

presentation

of

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.

A

company’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

of

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

in

accordance

with

authorizations

of

management

and

directors

of

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

in

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

may deteriorate.

5

Critical Audit Matter

The

critical

audit

matter

communicated

below

is a

matter

arising

from

the

current

period

audit

of

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

in

any

way

our

opinion

on

the

financial

statements,

taken

as

a

whole,

and

we

are

not,

by

communicating

the

critical

audit

matter

below,

providing

a

separate

opinion

on

the

critical

audit

matter

or

on

the

accounts

or

disclosures to which it relates.

Allowance for Credit Losses – Economic Forecasts and 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

of

expected

credit

losses

over

the

contractual

life

of

financial

assets

carried

at

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 economic

forecasts and

current and

forward-looking macroeconomic

variables used

contribute significantly

to the

determination

of the ACL for loans

and finance leases. We

identified the assessment of

economic forecasts and 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:

o

Management’s review and

approval of the economic forecasts and macroeconomic variables.

o

Management’s

review

of

the

reasonableness

of

the

results

of

the

selection

of

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:

o

Evaluation of reasonableness of economic forecasts selection.

o

Evaluation

of

the

completeness

and

accuracy

of

data

inputs

used

as

a

basis

for

the

adjustments

relating

to

macroeconomic variables.

o

Evaluation,

with

the

assistance

of

professionals

with

specialized

skill

and

knowledge,

of

the

reasonableness

of

management’s

judgments related

to the

economic forecast

and macroeconomic

variables used

in the

determination

of

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.

o

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.

6

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,

to

provide

reasonable

assurance

regarding

the

reliability

of

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

of

the

Corporation;

(2) provide

reasonable

assurance

that

transactions

are

recorded

as

necessary

to

permit

the

preparation

of

financial

statements

in

accordance

with

GAAP,

and

that

receipts

and

expenditures

of

the

Corporation

are

being

made

only

in

accordance

with

authorizations

of

management

and

directors

of

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

of

any

evaluation

of

effectiveness

to

future

periods

are

subject

to

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

is

responsible

for

establishing

and

maintaining

effective

internal

control

over

financial

reporting.

Management

assessed

the

effectiveness

of

the

Corporation’s

internal

control

over

financial

reporting

as

of

December 31,

2022,

based

on

the

framework

set

forth

by

the

Committee

of

Sponsoring

Organizations

of

the

Treadway

Commission

(COSO)

in

Internal

Control-

Integrated

Framework

(2013).

Based

on

that

assessment,

management

concluded

that,

as

of

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

Aurelio Alemán

President and Chief Executive Officer

Date: February 28, 2023

/s/

Orlando Berges

Orlando Berges

Executive Vice President

and Chief Financial Officer

Date: February 28, 2023

7

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

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

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

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)

(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

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.

8

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

-

-

94

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.

9

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

2

1

-

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.

10

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.

11

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

$

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

-

63

93

Balance at end of year

22,366

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

19

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.

12

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Nature of Business and Summary of Significant Accounting Policies

13

Note 2 –

Money Market Investments

29

Note 3 –

Debt Securities

30

Note 4 –

Loans Held for Investment

39

Note 5

–

Allowance for Credit Losses for Loans and Finance Leases

55

Note 6

–

Premises and Equipment

58

Note 7 –

Other Real Estate Owned

58

Note 8 –

Related-Party Transactions

59

Note 9

–

Goodwill and Other Intangibles

60

Note 10 –

Non-Consolidated Variable

Interest Entities (“VIE”) and Servicing Assets

62

Note 11 –

Deposits and Related Interest

67

Note 12 –

Securities Sold Under Agreements to Repurchase

69

Note 13 –

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

71

Note 14 –

Other Borrowings

72

Note 15 –

Earnings per Common Share

73

Note 16 –

Stock-Based Compensation

74

Note 17 –

Stockholders’ Equity

76

Note 18 –

Other Comprehensive (Loss) Income

78

Note 19 –

Employee Benefit Plans

79

Note 20 –

Other Non-Interest Income

84

Note 21 –

Other Non-Interest Expenses

84

Note 22 –

Income Taxes

85

Note 23 –

Operating Leases

88

Note 24 –

Derivative Instruments and Hedging Activities

90

Note 25

–

Fair Value

93

Note 26

–

Revenue from Contracts with Customers

98

Note 27 –

Segment Information

102

Note 28 –

Supplemental Statement of Cash Flows Information

105

Note 29 –

Regulatory Matters, Commitments, and Contingencies

106

Note 30 –

First BanCorp. (Holding Company Only) Financial Information

109

13

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

of

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

is

a

Puerto

Rico-chartered

commercial

bank,

and

FirstBank

Insurance

Agency is

a Puerto

Rico-chartered insurance

agency.

FirstBank is

subject to

the supervision,

examination, and

regulation of

both the

Office

of

the

Commissioner

of

Financial

Institutions

of

the

Commonwealth

of

Puerto

Rico

(the

“OCIF”)

and

the

Federal

Deposit

Insurance

Corporation

(“FDIC”).

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund.

FirstBank

also

operates

in

the

State

of

Florida,

subject

to

regulation

and

examination

by

the

Florida

Office

of

Financial

Regulation

and

the

FDIC;

in

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

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 in the

USVI and the BVI, and

nine

banking branches in the

state of Florida (USA).

FirstBank has six wholly-owned

subsidiaries

with

operations

in

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

a

finance

company

specializing

in

the

origination

of

small

loans

with

27

offices

in

Puerto

Rico;

First

Management

of

Puerto

Rico,

a

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

an

international

banking

entity

(an

“IBE”)

organized

under the

International Banking

Entity Act

of Puerto

Rico; two

companies engaged

in the

operation of

certain real

estate properties;

and

a wholly-owned

subsidiary of

FirstBank organized

in 2022

under the

laws of

the Commonwealth

of Puerto

Rico and

Act 60

of

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

of

the

Corporation

and

its

subsidiaries.

All

significant

intercompany

balances

and

transactions

have

been

eliminated

in

consolidation.

The

results

of

operations

of

companies

or

assets

acquired

are

included

from

the

date

of

acquisition.

Statutory

business

trusts

that

are

wholly-owned

by

the

Corporation

and

are

issuers

of

trust-

preferred

securities

(“TRuPs”)

and

entities

in

which

the

Corporation

has

a

non-controlling

interest,

are

not

consolidated

in

the

Corporation’s

consolidated

financial

statements

in

accordance

with

authoritative

guidance

issued

by

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)

14

Use of estimates in the preparation of financial statements

The

preparation

of

financial

statements

in

conformity

with GAAP

requires

management

to

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

in

determining

the

allowance

for

credit

losses

(“ACL”),

income

taxes,

as

well

as

fair

value

measurements

of

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

in

the

consolidated

statements

of

financial

condition

and

statements

of

changes

in

stockholders’

equity,

was

limited

to

an

increase

in

the

beginning

balance

of

treasury

stock

at

January

1,

2020

of

$

19

million and an increase in

additional paid-in capital for

the same amount, which was

considered immaterial. These adjustments

had no

impact

on

previously

issued

statements

of

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

at

amortized

cost.

The

Corporation

may

not

sell

or

transfer

held-to-maturity

securities

without

calling

into

question

its

intent

to

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

at

fair

value,

with

unrealized

gains

and

losses

reported

in

earnings.

As

of

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

of

deferred

taxes,

reported

in

other

comprehensive

loss

(“OCL”)

as

a

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

do

not

have

readily

available

fair

values

are

classified

as

equity

securities

in

the

consolidated

statements

of

financial

condition.

These

securities

are

stated

at

cost

less

impairment,

if

any.

This

category

is

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

on

debt

securities

are

amortized

as an

adjustment

to

interest

income

on

investments

over

the life

of

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)

15

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

a

security

placed

on

nonaccrual

is

reversed

against

interest

income.

See

Note

3

–

Debt

Securities

for

additional information on nonaccrual debt securities.

Allowance

for

Credit

Losses

–

Held-to-Maturity

Debt

Securities:

As

of

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

by

major

security

type.

Any

expected

credit

loss

is

provided

through

the

ACL

on

held-to-maturity

debt

securities

and

is

deducted

from

the

amortized

cost

basis

of

the

security

so

that

the

statement

of

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

in

bearer

form, nor

are they

registered

with

the

Securities

and

Exchange

Commission

(“SEC”)

and

are

not

rated

by

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

in

commercial

loans.

Accordingly,

similar

to

commercial

loans,

an

internal

risk

rating

(

i.e

.,

pass,

special

mention,

substandard,

doubtful,

or

loss)

is

assigned

to

each

bond

at

the

time

of

issuance

or

acquisition

and

monitored

on

a

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

on

the

product

of

a

cumulative

probability

of

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

as

of

which

the

PD

is

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,

as

well

as

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

of

each

bond.

For

the

relevant

macroeconomic

expectations

of

variables,

the

methodology

considers

an

initial

forecast

period

(a

“reasonable

and

supportable

period”)

of

two

years

and

a

reversion

period

of

up

to

three

years,

utilizing

a

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

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;

(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 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)

16

Allowance

for

Credit

Losses

–

Available-for-Sale

Debt

Securities:

For

available-for-sale

debt

securities

in

an

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

of

its

amortized

cost

basis.

If

either

of

the

criteria

regarding

intent

or

requirement

to

sell

is

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

in

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

in

fair

value

has

resulted

from

credit

losses

or

other

factors.

In

making

this

assessment,

management

considers

the

cash

position

of

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

to

the

credit

conditions

and

liquidity

of

the

issuer,

taking

into

consideration

the

latest

information

available

about

the

financial

condition

of

the

issuer,

credit

ratings,

the

failure

of

the

issuer

to

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

of

a

security,

if

any,

such

as

changes

in

default

rates,

loss

severity

given

default,

and

significant

changes

in

prepayment

assumptions

and

the

level

of

cash

flows

generated

from

the

underlying

collateral,

if

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

of

an

available-for-sale

debt

security

is

confirmed

or

when

either

of

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

or

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

is

a

zero-credit

loss

expectation

on

these

securities.

For

further

information,

including

the

methodology

and

assumptions

used

for

the

discounted

cash

flow

analyses

performed

on

other

available-for-sale

debt

securities

such

as

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

at

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

in

the

origination

of

new

loans

are

deferred

and

amortized

using

the

interest

method

or

a

method

that

approximates

the

interest

method

over

the

term

of

the

loan

as

an

adjustment

to

interest

yield.

Unearned

interest

on

certain

personal

loans,

auto

loans,

and

finance

leases

and

discounts

and

premiums

are

recognized

as

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)

17

Nonaccrual

and

Past-Due

Loans

-

Loans

on

which

the

recognition

of

interest

income

has

been

discontinued

are

designated

as

nonaccrual.

Loans

are

classified

as

nonaccrual

when

they

are

90

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”)

or

the

PRHFA,

and

credit

card

loans.

It

is

the

Corporation’s

policy

to

report

delinquent

mortgage

loans

insured

by

the

FHA,

or

guaranteed by

the VA

or the

PRHFA,

as loans

past due

90

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

15

months

delinquent,

taking

into

consideration

the

FHA

interest

curtailment

process,

and

relating

to

PRHFA

loans when

such loans are

over

90

days delinquent.

Credit card loans

continue to

accrue finance charges

and fees until

charged off

at

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

of

interest

or

principal

becomes

uncertain

(generally

based

on

an

assessment

of

the

borrower’s

financial

condition

and

the

adequacy

of

collateral,

if

any).

When

a

loan

is

placed

on

nonaccrual

status,

any

accrued

but

uncollected

interest

income

is

reversed

and

charged

against

interest

income

and

amortization

of

any

net

deferred

fees

is

suspended.

Interest

income

on

nonaccrual

loans

is

recognized

only

to

the

extent

it

is

received

in

cash.

However,

when

there

is

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

30

days

or

more

as

to

principal

or

interest

are

considered

delinquent,

with

the

exception

of

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

to

measure

an

ACL

on

accrued

interest

related

to

loans

held

for

investment,

as

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

an

assessment

of

acquired

loans

to

first

determine

if

such

loans

have

experienced

a

more

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

a

more

than

insignificant

deterioration

in

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

or

amortized

into

interest

income

over

the

remaining

life

of

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

is

recorded

through

a

charge

to

the

provision

for

credit

losses

in

the

period

in

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

a

discounted

cash

flow

method

that

considers

the

PDs

and

LGDs

used

in

the

Corporation’s

ACL

methodology.

Characteristics

of

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

a

more than

insignificant deterioration

in credit

quality since

a loan’s

origination. In

connection with

the Banco

Santander Puerto

Rico

(“BSPR”)

acquisition

on

September

1,

2020,

the

Corporation

acquired

PCD

loans

with

an

aggregate

fair

value

at

acquisition

of

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

to

acquisition,

the

ACL

for

both

non-PCD

and

PCD

loans

is

determined

pursuant

to

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”

or

“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

of

acquisitions

completed

prior

to

2020.

These

previous

transactions

include

a

transaction

completed

on

February

27,

2015,

in

which

FirstBank

acquired

ten

Puerto

Rico

branches

of

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

in

full

satisfaction

of

secured

borrowings

owed

by

such

entity

to

FirstBank.

As

the

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

18

Corporation

elected

to

maintain

pools

of

units

of

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

to

adoption

of

ASC

326),

but

is

required

to

follow

ASC

326

for

purposes

of

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

by

ASC

326

was

applied

at

a

pool

level,

which

froze

the

effective

interest

rate

of

the

pools

as

of

January

1,

2020.

According

to

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

as

being

in

nonaccrual

status

if

the

following

criteria

are

met:

(i)

the

Corporation

can

reasonably

estimate

the

timing

and

amounts

of

cash

flows

expected

to

be

collected,

and

(ii)

the

Corporation

did

not

acquire

the

asset

primarily

for

the

rewards

of

ownership

of

the

underlying

collateral,

such

as

use

of

the

collateral

in

operations

or

improving

the

collateral

for

resale.

Thus,

the

Corporation

continues

to

exclude

these

pools

of

PCD

loans

from

nonaccrual

loan

statistics.

In

accordance

with

ASC

326,

the

Corporation

did

not

reassess

whether

modifications

to

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

or

reasonably

expected

to

be

modified

in

a

TDR

and

performing

in

accordance

with

restructured

terms,

these

loans

are

not

considered

collateral

dependent.

The

ACL

of

collateral

dependent

loans

is

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

estimated costs to sell.

Collateral

dependent

loans

in

the

construction,

commercial

mortgage,

and

commercial

and

industrial

(“C&I”)

loan

portfolios

are

written

down

to

their

net

realizable

value

(fair

value

of

collateral,

less

estimated

costs

to

sell)

when

loans

are

considered

to

be

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

in

arrears.

Residential

mortgage

loans

that

are

180

days

delinquent

are

reviewed

and

charged-off,

as

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

of

the

collateral

prior

to

the

application

of

the

policies

described

above

if

a

loss-confirming

event

has

occurred.

Loss-

confirming

events

include,

but

are

not

limited

to,

bankruptcy

(unsecured),

continued

delinquency,

or

receipt

of

an

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

a

concession

to

the

debtor

that

it

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

or

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

to

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)

19

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

to

present

the

net

amount

expected

to

be

collected

on

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

is

a

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

as

any

difference

in

underwriting

standards,

portfolio

mix,

delinquency

level,

or

term.

Additionally,

the

Corporation’s

assessment

involves

evaluating

key

factors,

which

include

credit

and

macroeconomic

indicators,

such

as

changes

in

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

on

a

PD/LGD

modeled

approach,

or

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

of

loans

within

certain

of

those

portfolio

segments.

Factors

such

as

the

credit

risk

inherent

in

a

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

by

residential

real

property

together

with

the

right

to

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

by

commercial

real

estate

properties

for

which

the

primary

source

of

repayment

comes

from

rent

and

lease

payments

that

are

generated

by

an

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

by

the

borrower

and

not

from

rental

income

or

the

sale

or

refinancing

of

any

underlying

real

estate

collateral;

thus,

credit

risk

is

largely

dependent

on

the

commercial

borrower’s

current

and

expected

financial condition.

The

C&I

loan

portfolio

consists

of

loans

granted

to

large

corporate

customers

as

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

sector.

●

Construction

–

Construction

loans

consisted

generally

of

loans

secured

by

real

estate

made

to

finance

the

construction

of

industrial,

commercial,

or

residential

buildings

and

included

loans

to

finance

land

development

in

preparation

for

erecting

new

structures.

These

loans

involve

an

inherently

higher

level

of

risk

and

sensitivity

to

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

of

unsecured

and

secured

loans

extended

to

individuals

for

household,

family, and other personal

expenditures, including several classes of products.

For

purposes

of

the

ACL

determination,

the

Corporation

stratifies

portfolio

segments

by

two

main

regions

(

i.e.,

the

Puerto

Rico/Virgin

Islands

region

and

the

Florida

region).

The

ACL

is

measured

using

a

PD/LGD

model

that

is

calculated

based

on

the

product of a

cumulative PD and

LGD. PD and

LGD estimates are

updated quarterly

for each loan

over the remaining

expected life to

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

by

the

following

two

classes:

(i)

government-

guaranteed

residential

mortgage

loans,

and

(ii)

conventional

mortgage

loans.

Government-guaranteed

loans

are

those

originated

to

qualified

borrowers

under

the

FHA

and

the

VA

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)

20

ACL is

calculated for

conventional

residential mortgage

loans, which

are loans

that do

not qualify

under the

FHA or

VA

programs.

PD

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.

On

the

other

hand,

LGD

estimates

are

based

on

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,

as

well

as

relevant

current

and

forecasted

macroeconomic

variables

expectations,

such

as

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.

On

the

other

hand,

LGD

estimates

are

based

on

industry

historical

loss

experience,

specific

attributes

of

the loans,

such

as loan

to

value,

as

well

as relevant

current

and

forecasted

expectations

for

macroeconomic

variables,

such

as

unemployment

rates,

interest

rates,

and

market

risk

factors

based

on

industry

performance and the equity market.

For

construction

loans,

PD

estimates

are

based

on,

among

other

things,

historical

payment

performance

experience,

industry

historical

loss experience,

underlying

type

of collateral,

and

relevant

current and

forward-looking

macroeconomic

variables. On

the

other

hand,

LGD

estimates

are

based

on

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

of

consumer

credit

lines,

among

others.

In

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

on

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

a

reversion

period

of up

to

three years

,

utilizing a

straight-line approach

and reverting

back to

the historical

macroeconomic

mean. 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,

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

to

be

modified

in

a

TDR

and

that

have

balances

of

$

0.5

million

or

more

in

the

case

of

commercial

and

construction

loans

(other

than

commercial

mortgage

and

construction

loans,

in

which

the

ACL

is

based

on

the

fair

value

of

the

collateral

at

the

reporting

date,

adjusted

for

undiscounted

estimated

costs

to

sell)

is

generally

measured

using

a

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)

to

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

21

arrive

at

the

net

present

value

of

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

in

circumstances

that

caused

changes

in

the

ACL

for

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

2021, and 2020.

Refer

to

ASU

2022-02

discussion

below

for

information

on

the

amendments

to

the

TDR

guidance

that

are

effective

on

or

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

to

extend

credit

unless

the

obligation

is

unconditionally

cancellable

by

the

Corporation.

The

ACL

on

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

5

–

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

at

amortized

cost

is

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

as

held-for-sale

loans.

Loans

held

for

sale

are

recorded

at

the

lower

of

cost

or

fair

value

less

costs

to

sell.

Generally,

the

loans

held-for-sale

portfolio

consists

of

conforming

residential

mortgage

loans

that

will

be

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

is

primarily

derived

from

quotations

based

on

the

MBS

market.

The

amount

by

which

cost

exceeds

market

value

in

the

aggregate portfolio

of residential

mortgage loans

held for

sale, if

any,

is accounted

for as

a valuation

allowance with

changes therein

included

in

the

determination

of

net

income

and

reported

as

part

of

mortgage

banking

activities

in

the

consolidated

statements

of

income.

Loan

costs

and

fees

are

deferred

at

origination

and

are

recognized

in

income

at

the

time

of

sale

and

are

included

in

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

is

reversed

in

earnings

after

applying

the

write-down

policy.

Subsequent

changes

in

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)

22

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

of

conditions

that

constrain

it

from

taking

advantage

of

that

right)

to

pledge

or

exchange

the

transferred

assets;

and

(iii) the

transferor

cannot

maintain

effective

control

over

the

transferred

assets

through

an

agreement

to

repurchase

them

before

their maturity.

When

the

Corporation

transfers

financial

assets

and

the

transfer

fails

any

one

of

the

above

criteria,

the

Corporation

is

prevented

from

derecognizing

the

transferred

financial

assets

and

the

transaction

is

accounted

for

as

a

secured borrowing.

Servicing assets

The Corporation recognizes

as separate assets

the rights to

service loans for

others, whether those

servicing assets are

originated or

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”

or

“MSRs”)

retained

in

a

sale

or

securitization

arise

from

contractual

agreements

between

the

Corporation

and

investors

in

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

to

income

on

a

monthly

basis

when

collected

and

recorded

as

part

of

mortgage

banking

activities

in

the

consolidated

statements

of

income.

In

addition,

the

Corporation

generally

receives

other

remuneration

consisting

of

mortgagor-contracted

fees

such

as

late

charges

and

prepayment

penalties,

which

are

credited

to

income

when collected.

Considerable judgment is required

to determine the fair value of

the Corporation’s

MSRs. Unlike highly liquid investments,

the fair

value

of

MSRs

cannot

be

readily

determined

because

these

assets

are

not

actively

traded

in

securities

markets.

The

initial

carrying

value

of

an

MSR is

determined

based

on

its fair

value.

The Corporation

determines

the

fair

value

of

the

MSRs using

a

discounted

static cash

flow analysis,

which incorporates

current market

assumptions commonly

used by

buyers of

these MSRs

and was

derived

from

prevailing

conditions

in

the

secondary

servicing

market.

The

valuation

of

the

Corporation’s

MSRs

incorporates

two

sets

of

assumptions: (i) market-derived

assumptions for discount

rates, servicing costs,

escrow earnings rates,

floating earnings rates,

and the

cost

of

funds;

and

(ii) market

assumptions

calibrated

to

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

a

valuation

allowance for

each individual

stratum of

servicing assets.

For purposes

of performing

the MSR

impairment evaluation,

the servicing

portfolio

is

stratified

on

the

basis

of

certain

risk

characteristics,

such

as

region,

terms,

and

coupons.

The

Corporation

conducts

an

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

is

charged

to

the

valuation

allowance.

Impairment

charges

are

recorded

as

part

of

revenues

from

mortgage banking activities in the consolidated statements of income

.

The

MSRs

are

amortized

over

the

estimated

life

of

the

underlying

loans

based

on

an

income

forecast

method

as

a

reduction

of

servicing income.

The income forecast

method of amortization

is based on

projected cash flows.

A particular periodic

amortization is

calculated

by

applying

to

the

carrying

amount

of

the

MSRs

the

ratio

of

the

cash

flows

projected

for

the

current

period

to

total

remaining net MSR forecasted cash flow.

Premises and equipment

Premises

and

equipment

are

carried

at

cost,

net

of

accumulated

depreciation

and

amortization.

Depreciation

is

provided

on

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)

23

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

in

the

consolidated

statements

of

income.

When

the

asset

is

no

longer

used

in

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

on

the

present

value

of

the

remaining

lease

payments,

discounted

using

the

discount

rate

for

the

lease

at

the

commencement

date,

or

at

acquisition

date

in

case

of

a

business

combination.

As

the

rates

implicit

in

the

Corporation’s

operating

leases are

not readily

determinable,

the Corporation

generally uses

an incremental

borrowing

rate based

on information

available

at

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

to

operating leases

for the

Bank’s

branches. Most

of the

Corporation’s

leases with

operating ROU

assets have

terms of

two years

to

30

years

, some

of which

include options

to extend

the leases

for up

to

ten years

.

The Corporation

does not

recognize ROU

assets and

lease

liabilities

that

arise

from

short-term

leases

(less

than

12

months).

Operating

lease

expense,

which

is

included

as

part

of

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

as

part

of

other

assets

and

accounts

payable

and

other

liabilities,

respectively,

in

the

consolidated statements

of financial condition.

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

no

t have any leases that qualified as finance leases.

Other real estate owned (“OREO”)

OREO,

which

consists

of

real estate

acquired

in

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

to

foreclosure.

Any further

reduction

to

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

on

the

periodic

reevaluations

of

these

properties,

and

gains

or

losses

resulting

from

the

sale of

these

properties

are

charged

or

credited

to

earnings

and

are

included

as part

of

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

on

property

collateralizing

an

FHA/VA

government-guaranteed

residential

mortgage

loan,

the

Corporation

derecognizes

the

government-guaranteed

mortgage

loan

and

recognizes

a

receivable

as

part

of

other

assets

in

the

consolidated

statements

of

condition

if

the

conditions

in

ASC

Subtopic

310-40,

“Reclassification

of

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

in

excess

of

the

fair

value

of

net

assets

acquired

(including

identifiable

intangibles)

in

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

or

circumstances,

the

Corporation

concludes

that

it

is

more-likely-than-not

that

the

fair

value

of

a

reporting

unit

is

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

in

connection

with

the

acquisition

of

BSPR

in

2020,

the

Corporation’s

goodwill

is

mostly

related

to

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)

24

Other

Intangible

Assets

–

The

Corporation’s

other

intangible

assets

primarily

relate

to

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

as

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

it

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

to

certain agreements may have the right to repledge the collateral by

contract or custom. The Corporation presents such assets separately

in

the

consolidated

statements

of

financial

condition

as

securities

pledged

with

creditors’

rights

to

repledge.

Repurchase

and

resale

activities may be

transacted under

legally enforceable

master repurchase

agreements that give

the Corporation, in

the event of

default

by

the

counterparty,

the

right

to

liquidate

securities

held

and

to

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

to

time,

the

Corporation

modifies

repurchase

agreements

to

take

advantage

of

prevailing

interest

rates.

Following

applicable

GAAP guidance,

if

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

10

% different

from

the

present

value

of

the

remaining

cash

flows

under

the

terms

of

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

of

the

original

debt

instrument.

The

Corporation

has

determined

that

none

of

the

repurchase

agreements

modified

in

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

of

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

in

tax rates

is recognized

in income

at the

time of

enactment of

such change

in tax

rates. Any

interest or

penalties due

for payment

of

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

of

existing

temporary

differences,

tax

planning

strategies

and

future

taxable

income,

exclusive

of

the

impact

of

the

reversal

of

temporary differences and

carryforwards. In estimating

taxes, management assesses the

relative merits and risks

of the appropriate tax

treatment

of

transactions

considering

statutory,

judicial,

and

regulatory

guidance.

See

Note

22

–

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

be

more

likely than

not

to be

sustained

based solely

on

its technical

merits

in

order

to

be recognized;

and

ii)

the

benefit

is

measured

at

the

largest

dollar

amount

of

that

position

that

is

more

likely

than

not

to

be

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

to

as an Unrecognized Tax

Benefit.

The Corporation releases income tax effects from OCL as pension

and postretirement liabilities are extinguished.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

25

Stock repurchases

Treasury

shares

are

recorded

at

their

reacquisition

cost,

as

a

reduction

of

stockholders’

equity

in

the

consolidated

statements

of

financial condition. When

reissuing treasury shares

for the granting

of stock-based compensation

awards, treasury stock

is reduced by

the

cost

allocated

to

such

stock

and

additional

paid-in

capital

is

credited

for

gains

and

debited

for

losses

when

treasury

stock

is

reissued at prices that differ from the reacquisition cost.

Stock-based compensation

Compensation

cost

is

recognized

in

the

financial

statements

for

all

share-based

payment

grants.

The

First

BanCorp.

Omnibus

Incentive

Plan,

as

amended

(the

“Omnibus

Plan”)

provides

for

equity-based

and

non-equity-based

compensation

incentives

(the

“awards”)

through

the

grant

of

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

at

the

grant

date

(considering

forfeitures

and

any

post-vesting

restrictions),

is

recognized

over

the

period

during

which

an

employee

or director

is required

to

provide

services

in

exchange

for

an

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

as

the

Corporation

recognizes

the

effect

of

adjusting

the

rate

for

all

expense

amortization

in

the

period

in

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

in

the

financial

statements.

If

the

actual

forfeiture

rate

is

lower

than

the

estimated

forfeiture

rate,

an

adjustment

is

made

to

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

on

plan

assets,

as

well

as

deferral

and

amortization

of

certain

items

such

as

actuarial

gains

or

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

in

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

of

postretirement

benefits,

which

is determined

based on

actuarial

assumptions

and

estimates

of

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

of

ASC

Topic

715,

“Retirement

Benefits,”

requires

the

recognition

of

the

funded status

of each

defined pension

benefit plan,

retiree health

care plan

and other

postretirement benefit

plans on

the statement

of

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)

26

Segment information

The Corporation reports financial and

descriptive information about its reportable

segments. Operating segments are components

of

an

enterprise

about

which

separate

financial

information

is available

that

is evaluated

regularly

by management

in

deciding

how

to

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

is

based

on

whether

the

inputs

to

the

valuation

techniques

used

to

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

of

common

shares

issued

and outstanding.

Net

income

attributable

to

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

related

to

the

current

dividend

period

that

have

not

been

declared

as

of

the

end

of

the

period.

Basic

weighted-average

common

shares

outstanding

excludes

unvested

shares

of

restricted

stock

that

do

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

shares

is

increased

to

include

the

number

of

additional

common

shares

that

would

have

been

outstanding

if

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

of

stock

options,

if

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

of

potential

dilutive

shares

issued

and

the

shares

purchased

is

added

as

incremental

shares

to

the

actual

number

of

shares

outstanding

to

compute

diluted

earnings

per

share.

Unvested

shares

of

restricted

stock, stock options, and

warrants outstanding during the

period, if any,

that result in lower potential

dilutive shares issued than

shares

purchased

under

the

treasury

stock

method

are

not

included

in

the

computation

of

dilutive

earnings

per

share

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)

27

Accounting Standards Adopted in 2022

ASU

2022-06,

“Reference

Rate

Reform

(Topic

848):

Deferral

of

the

Sunset

Date

of

Topic

848”,

which

was

effective

upon

the

issuance

of

this

ASU

in

December

2022,

extends

the

sunset

(or

expiration

date)

of

ASC

Topic

848

from

December

31,

2022

to

December

31,

2024.

Notwithstanding,

the

Corporation

expects

to

follow

the

provisions

of

the

LIBOR

Act

for

the

transition

of

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

Share

(Topic

260),

Debt

–

Modifications

and

Extinguishments

(Subtopic

470-50),

Compensation

–

Stock

Compensation

(Topic

718),

and

Derivatives

and

Hedging

–

Contracts

in

Entity’s

Own

Equity

(Subtopic

815-40):

Issuer’s

Accounting

for

Certain

Modifications

or

Exchanges

of

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

in

an

Entity’s

Own

Equity

(Subtopic

815-40):

Accounting

for

Convertible

Instruments

and

Contracts

in

an

Entity’s

Own

Equity”

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

28

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

$

1

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)

29

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

$

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

of

4.33

% and

0.07

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

(4)

Weighted-average interest rate

of

0.14

% and

0.15

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

As

of

December

31,

2022,

the

Corporation

had

$

0.5

million

(2021

-

$

1.2

million)

in

money

market

investments

pledged

as

collateral as part of margin calls associated to derivative contracts.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

30

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

22

227,724

-

2,167,571

0.83

After 5 to 10 years

56,251

13

7,670

-

48,594

1.54

After 10 years

12,170

36

-

-

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

71

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

5

-

-

-

5

1.73

After 1 to 5 years

15,508

-

622

-

14,886

2.00

After 5 to 10 years

45,322

1

3,809

-

41,514

1.31

After 10 years

232,632

51

27,169

-

205,514

2.47

293,467

52

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

83

5,794

6.83

Total MBS

3,652,795

176

548,297

83

3,104,591

1.52

Other

Due within one year

500

-

-

-

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)

31

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, 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

$

59

$

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

2

-

-

-

2

1.32

After 1 to 5 years

16,714

572

-

-

17,286

2.90

After 5 to 10 years

27,271

80

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

21

-

-

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

1

778

-

23,230

1.31

After 5 to 10 years

14,316

97

-

-

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

-

-

-

500

0.72

After 1 to 5 years

500

-

-

-

500

0.84

1,000

-

-

-

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)

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)

32

Maturities

of

available-for-sale

debt

securities

are

based

on

the

period

of

final

contractual

maturity.

Expected

maturities

might

differ

from

contractual

maturities

because

they

may

be

subject

to

prepayments

and/or

call

options.

The

weighted-average

yield

on

available-for-sale

debt

securities

is

based

on

amortized

cost

and,

therefore,

does

not

give

effect

to

changes

in

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

of

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

Unrealized

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

Unrealized

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)

33

There

were

no

sales

of

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

by

the

U.S.

federal

government.

Because

the

decline

in

fair

value

is

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

it

is

likely

that

it

will

not

be

required

to

sell

the

securities

before

their

anticipated

recovery,

the

Corporation

does

not

consider

impairments

on

these

securities

to

be

credit

related

as

of

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

a

fair

value

of

$

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.

As

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

be

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

at

the

Treasury

yield

curve

as

of

the

reporting

date.

Significant

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

As of

As of

December 31, 2022

December 31, 2021

Weighted

Range

Weighted

Range

Average

Minimum

Maximum

Average

Minimum

Maximum

Discount rate

16.2%

16.2%

16.2%

12.9%

12.9%

12.9%

Prepayment rate

11.8%

1.5%

15.2%

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)

34

As

of

December

31,

2022,

the

Corporation’s

available-for-sale

debt

securities

portfolio

also

included

a

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

of

repayment on this

residential pass-through

MBS are second mortgage

loans in Puerto Rico.

PRHFA, not

the Puerto Rico

government,

provides

a

guarantee

in

the

event

of

default

and

subsequent

foreclosure

of

the

properties

underlying

the

second

mortgage

loans.

During

2021,

the Corporation

placed

this instrument

in

nonaccrual

status based

on

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

as

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

at

the

Treasury

yield

curve

plus

a

spread

as

of

the

reporting

date

and

compared

to

the

amortized

cost.

In

the

event

that

the

second

mortgage

loans

default

and

the

collateral

is

insufficient

to

satisfy

the

outstanding

balance

of

this

residential

pass-through

MBS,

PRHFA’s

ability

to

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

or

fiscal

health

of

the

PRHFA

could

impact

the

value

of

these

securities,

resulting

in

additional

losses

to

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)

67

(434)

Net charge-offs

(213)

-

(213)

ACL on available-for-sale debt securities

$

83

$

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)

-

(136)

Net charge-offs

(69)

-

(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)

-

(331)

ACL on available-for-sale debt securities

$

1,002

$

308

$

1,310

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

35

During

2022,

the

Corporation

recognized

$

86.1

million

of

interest

income

on

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

$

-

$

15

$

1,187

$

2

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

$

5

$

-

$

3,000

$

70

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)

36

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

Unrecognized

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

Unrecognized

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)

37

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

by

GSEs and

Puerto

Rico

municipal

bonds.

As of

December

31,

2022,

all of

the

MBS included

in

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

to

scheduled

contractual

payments

as

of

December

31,

2022.

The

Puerto

Rico

municipal

bonds

had

an

ACL

of

$

8.3

million

as

of

December

31,

2022,

down

$

0.3

million

from

$

8.6

million

as

of

December

31,

2021,

mostly

related

to

a

reduction

in

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

of

Puerto

Rico’s

78

municipalities

as

covered

instrumentalities

under

PROMESA.

Municipalities

may

be

affected

by

the

negative

economic

and

other

effects

resulting

from

expense,

revenue,

or

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,

more

recently,

by

the

effect

of

the

COVID-19

pandemic

on

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

be

taken,

by

other

government

entities

in

response

to

economic

and

fiscal

challenges

on

municipalities,

the

Corporation

cannot

be

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

From

time

to

time,

the

Corporation

has

securities

held

to

maturity

with

an

original

maturity

of

three

months

or

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

as

money

market

investments

in

the

consolidated

statements

of

financial

condition. As of

December 31,

2022 and

2021, the

Corporation had

no

outstanding securities

held to

maturity that

were classified

as

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)

38

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

as

securities

but

are

underwritten

as

loans

with

features

that

are

typically

found

in

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,

or

Loss.

Puerto

Rico

municipal

bonds

that

do

not

meet

the

criteria

for

classification

as

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

as

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

at

some

future

date.

Special

Mention

assets

are

not

adversely

classified

and

do

not

expose

the

Corporation

to

sufficient

risk

to

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

in

those

classified

Substandard

with

the

added

characteristic

that

the

weaknesses

make

collection

or

liquidation

in

full

highly

questionable

and

improbable,

based

on

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

no

recovery

or

salvage

value,

but

rather

that

it

is

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

to

evaluate

if

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

a

Loan

Review

Group

that

reports

directly

to

the

Corporation’s

Risk

Management

Committee

and

administratively

to

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

of

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

as

held-to-maturity

debt

securities.

The objective

of

these

loan

reviews is

to

assess accuracy

of the

Bank’s

determination

and

maintenance

of

loan

risk

rating

and

its

adherence

to

lending

policies,

practices

and

procedures.

The

monitoring

performed

by

this

group

contributes

to

the

assessment

of

compliance

with

credit

policies

and

underwriting

standards,

the

determination

of

the

current

level

of

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.

No

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)

39

NOTE 4 – LOANS HELD FOR INVESTMENT

The

following

table

provides

information

about

the

loan

portfolio

held

for

investment

by

portfolio

segment

and

disaggregated

by

geographic locations

as of the indicated

dates:

As of December 31,

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

in an

aggregate

amount

of

$

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

related

unused

commitments.

Total

loans

carrying

value

pledged

as

collateral

amounted

to

$

4.3

billion

and

$

4.1

billion

as

of

December 31,

2022

and

2021,

respectively.

As

of

December

31,

2022,

loans

pledged

as

collateral

include

$

2.2

billion

of

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)

40

The Corporation’s

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL

by

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)

41

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

18

-

-

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

20

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)

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 $

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

in

the

process

of

foreclosure

amounted

to

$

72.4

million,

including

$

29.4

million

of

FHA/VA

government-guaranteed

mortgage

loans,

and

$

10.0

million

of

PCD

loans

acquired

prior

to

the

adoption,

on

January

1,

2020,

of

CECL.

The

Corporation

commences

the

foreclosure

process

on

residential

real

estate

loans

when

a

borrower

becomes

120

days

delinquent.

Foreclosure

procedures

and

timelines

vary

depending

on

whether

the

property

is

located

in

a

judicial

or

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

to

classify

the

loans’

credit

risk.

As

mentioned

above,

the

Corporation

periodically

reviews

its

commercial

and

construction

loans

to

evaluate

if

they

are

properly

classified.

The

frequency

of

these

reviews

will

depend

on

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

as

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

as

held-to-maturity

debt

securities,

as

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)

42

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and by

origination

year

based

on

the

internal

credit-risk

category

as

of

December

31,

2022

and

the

amortized

cost

of

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

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

$

9,463

$

18,385

$

-

$

-

$

-

$

4,031

$

-

$

31,879

$

38,066

Criticized:

Special Mention

-

-

-

-

-

-

-

-

765

Substandard

-

-

-

-

-

2,893

-

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)

43

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

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

$

48,536

$

42,841

$

-

$

14

$

-

$

-

$

6,790

$

98,181

$

95,866

Criticized:

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

-

-

-

Doubtful

-

-

-

-

-

-

-

-

-

Loss

-

-

-

-

-

-

-

-

-

Total construction loans

$

48,536

$

42,841

$

-

$

14

$

-

$

-

$

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

-

-

-

-

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)

44

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

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

$

57,999

$

61,226

$

-

$

14

$

-

$

4,031

$

6,790

$

130,060

$

133,932

Criticized:

Special Mention

-

-

-

-

-

-

-

-

765

Substandard

-

-

-

-

-

2,893

-

2,893

4,302

Doubtful

-

-

-

-

-

-

-

-

-

Loss

-

-

-

-

-

-

-

-

-

Total construction loans

$

57,999

$

61,226

$

-

$

14

$

-

$

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)

45

The following

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

based on

accrual

status as

of

December

31,

2022,

and

the

amortized cost

of

residential

mortgage

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

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

-

35

-

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

-

35

-

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

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

$

-

$

-

$

-

$

-

$

-

$

742

$

-

$

742

$

740

Non-Performing

-

-

-

-

-

-

-

-

-

Total FHA/VA

government-guaranteed loans

$

-

$

-

$

-

$

-

$

-

$

742

$

-

$

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)

46

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

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

-

35

-

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

-

35

-

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)

47

The

following

tables present

the

amortized

cost

of

consumer

loans

by

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

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

$

311,731

$

290,226

Non-Performing

-

-

-

-

-

-

-

-

-

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

311,731

$

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

61

119

20

241

71

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

71

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)

48

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

Total

(In thousands)

Florida Region:

Auto loans:

Accrual Status:

Performing

$

-

$

-

$

-

$

305

$

2,333

$

979

$

-

$

3,617

$

8,759

Non-Performing

-

-

-

-

36

40

-

76

-

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

$

71

$

9

$

-

$

-

$

-

$

-

$

334

$

107

Non-Performing

-

-

-

-

-

-

-

-

-

Total personal loans

$

254

$

71

$

9

$

-

$

-

$

-

$

-

$

334

$

107

Credit cards:

Accrual Status:

Performing

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Non-Performing

-

-

-

-

-

-

-

-

-

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

Other consumer loans:

Accrual Status:

Performing

$

49

$

231

$

464

$

-

$

39

$

2,588

$

2,462

$

5,833

$

6,661

Non-Performing

-

-

-

-

-

21

98

119

133

Total other consumer loans

$

49

$

231

$

464

$

-

$

39

$

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

-

-

-

-

36

61

98

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)

49

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

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

$

311,731

$

290,226

Non-Performing

-

-

-

-

-

-

-

-

-

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

311,731

$

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

61

119

20

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)

50

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

of

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

Related

Allowance

Amortized Cost

Amortized Cost

Related

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

$

36,206

$

2,571

$

-

$

36,206

$

2,571

Commercial loans:

Construction loans

-

-

956

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

56

1

64

120

1

Other consumer loans

207

29

-

207

29

$

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

Related

Allowance

Amortized Cost

Amortized Cost

Related

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

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

78

1

-

78

1

Other consumer loans

782

98

-

782

98

$

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

in

circumstances

that

could

ultimately

impact

credit

losses

and

might

not

be

reflected

in

historical

data

or

forecasted

data

incorporated

in

the

quantitative

models.

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans

consisted

of

single-family

residential

properties,

and

for

commercial

and

construction

loans

consisted

primarily

of

office

buildings,

multifamily

residential

properties,

and

retail

establishments.

The

weighted-average

loan-to-

value

coverage

for collateral

dependent

loans as

of

December 2022

decreased to

70

%, compared

to

78

% 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)

51

Purchases and Sales of Loans

In

the

ordinary

course

of

business,

the

Corporation

enters

into

securitization

transactions

and

whole

loan

sales

with

GNMA

and

GSEs,

such

as

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

a

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,

of

performing

residential

mortgage

loans

to

FNMA

and

FHLMC,

of

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

it

sells

consists

primarily

of

servicing

the

loans.

In

addition,

the

Corporation

agrees

to

repurchase

loans

if

it

breaches

any

of

the

representations

and

warranties

included

in

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

to

have

regained

effective

control

over

the

loans,

it

is

required

to

recognize

the

loans

and

a

corresponding

repurchase

liability

regardless

of

its

intent

to

repurchase

the

loans.

As

of

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

to

the

aforementioned

repurchase

option,

$

8.2

million,

$

1.1

million,

and

$

55.0

million,

respectively,

of

loans

previously

pooled

into

GNMA

MBS.

The

principal

balance

of

these

loans

is

fully

guaranteed,

and

the

risk

of

loss

related

to

the

repurchased

loans

is generally

limited

to

the

difference between

the delinquent interest

payment advanced to

GNMA, which is computed

at the loan’s

interest rate, and

the interest

payments

reimbursed

by

FHA,

which

are

computed

at

a

pre-determined

debenture

rate.

Repurchases

of

GNMA

loans

allow

the

Corporation,

among

other

things,

to maintain

acceptable

delinquency

rates

on outstanding

GNMA

pools

and

remain as

a

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

to

FNMA

and

FHLMC

are

without

recourse

in

relation

to

the

future

performance

of

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 $

42

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

in

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

58

% 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

to

the

loans

sold.

The

transaction

resulted

in

total

net

charge-offs

of

$

23.1

million

and

an

additional

loss

of

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,

as

amended,

to

support

lending

to

small

and

medium-sized

businesses

that

were

in

sound

financial

condition

before

the

onset

of

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

23

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

in

the

Florida

region totaling $

135.4

million, $

174.7

million, and $

40.0

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

52

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

79

% in

Puerto Rico,

18

% in

the U.S.,

and

3

% in

the USVI and BVI.

As of

December

31,

2022,

the Corporation

had

$

169.8

million

outstanding

in

loans

extended

to

the Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

to

$

178.4

million

as

of

December

31,

2021.

As

of

December

31,

2022,

approximately

$

102.7

million consisted

of loans

extended

to municipalities

in Puerto

Rico that

are general

obligations supported

by

assigned

property

tax

revenues,

and

$

28.9

million

of

loans

which

are

supported

by

one

or

more

specific

sources

of

municipal

revenues.

The

vast

majority

of

revenues

of

the

municipalities

included

in

the

Corporation’s

loan

portfolio

are

independent

of

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

to

loans

extended

to

municipalities,

the

Corporation’s

exposure

to

the

Puerto

Rico

government

as

of

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

an

agency of the Puerto Rico central government.

In

addition,

as

of

December

31,

2022,

the

Corporation

had

$

84.7

million

in

exposure

to

residential

mortgage

loans

that

are

guaranteed by the

PRHFA, a

government instrumentality

that has been designated

as a covered entity

under PROMESA, compared

to

$

92.8

million

as

of

December

31,

2021.

Residential

mortgage

loans

guaranteed

by

the

PRHFA

are

secured

by

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

to

USVI

government

entities.

As

of

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

of

a

borrower’s

financial

condition,

restructurings

or

loan

modifications

through

this

program,

as

well

as

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

as

either

accrual

or

nonaccrual

loans.

The

total

TDR

loans

held

for

investment

consisted

of

$

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

to

a

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 $

4

thousand on TDR consumer loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

53

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

-

-

18

591

Personal loans

99

171

105

-

19

394

Credit cards

(2)

-

-

-

-

816

816

Other consumer loans

112

272

16

43

-

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

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,

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

26

-

26

697

Personal loans

13

60

387

-

44

504

Credit cards

(2)

-

-

-

-

1,426

1,426

Other consumer loans

110

79

-

77

-

266

Total TDRs

$

2,376

$

2,376

$

23,023

$

77

$

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

$

18

$

545

$

2,044

$

-

$

-

$

5,700

$

8,307

Construction loans

-

-

-

-

-

-

-

Commercial mortgage loans

-

-

271

-

-

553

824

C&I loans

31

-

4,107

-

18,386

-

22,524

Consumer loans:

Auto loans

1,902

413

275

-

-

33

2,623

Finance leases

-

408

-

-

-

-

408

Personal loans

38

74

145

-

-

48

305

Credit cards

(2)

-

-

-

-

-

783

783

Other consumer loans

219

83

24

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)

54

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

68

$

7,165

$

7,100

66

$

7,687

$

7,594

103

$

9,027

$

8,307

Construction loans

-

-

-

-

-

-

-

-

-

Commercial mortgage loans

3

5,897

5,890

7

11,285

11,223

5

824

824

C&I loans

17

5,156

4,928

6

10,031

9,908

14

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

33

592

591

42

692

697

29

408

408

Personal loans

26

366

394

46

497

504

30

306

305

Credit Cards

170

815

816

246

1,426

1,426

159

783

783

Other consumer loans

115

434

443

65

266

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

2

$

124

-

$

-

4

$

465

Construction loans

-

-

-

-

-

-

Commercial mortgage loans

-

-

-

-

-

-

C&I loans

-

-

-

-

3

124

Consumer loans:

Auto loans

96

2,049

92

1,625

55

947

Finance leases

1

16

-

-

1

5

Personal loans

-

-

1

1

1

7

Credit cards

28

156

24

126

23

93

Other consumer loans

8

30

11

45

58

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

A

Note

is

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

B

Note

includes

the

granting

of

the

concession

to

the

borrower

and

varies

by

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)

55

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)

56

The

Corporation

estimates

the

ACL

following

the

methodologies

described

in

Note

1

–

Nature

of

Business

and

Summary

of

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

on

a

variety

of

factors

such

as

economic

uncertainties

associated

to

the

continued

conflict

in

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.

As

of

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

in

the ACL for residential mortgage

loans was primarily driven

by the overall decrease

in the size of this portfolio

and, to a lesser extent,

a

decrease

in

qualitative

adjustments

due

to

improvements

in

underlying

portfolio

metrics.

The

ACL

increase

for

consumer

loans

consisted

of

charges

to

the

provision

of

$

57.5

million

recorded

in

2022

mainly

due

to

a

deterioration

in

the

outlook

of

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

by

$

20.9

million

to

$

34.2

million,

when

compared

to

2021.

The

variance

consisted

of

a

$

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

of

the

bulk

sale

of

nonaccrual

residential

mortgage

loans

and

related

servicing

advances

during

the

third

quarter

of

2021;

partially

offset

by

a $

2.8

million increase

in net

charge-offs

on consumer

and

finance leases,

primarily

in the

personal loans

portfolio,

and

a

$

1.5

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

57

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.

In

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

in

which

the

Corporation

is

exposed

to

credit

risk

via

a

contractual

obligation

to

extend

credit,

such

as

unfunded

loan

commitments

and

standby

letters

of

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

in

Note

1

–

Nature

of

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

in

the

ACL

for

unfunded

loan

commitments

and

standby

letters

of

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)

58

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

10

35

$

135,802

$

138,524

Leasehold improvements

1

10

76,390

79,419

Furniture, equipment and software

2

10

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

of

the

business

interruption

insurance

claim related

to

lost profits

caused

by Hurricanes

Irma

and

Maria. This

amount

is

included

as

part

of

other

non-interest

income

in

the

consolidated

statements

of

income.

In

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

a

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)

59

NOTE 8 – RELATED-PARTY

TRANSACTIONS

The

Corporation

has

granted

loans

to

its

directors,

executive

officers,

and

certain

related

individuals

or

entities

in

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

89

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

of

Member

Banks,”

which

governs

the

permissible

lending

relationships

between

a

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

of

three

new

executive

officers

and

the

departure

of

one

executive

officer.

There

were

no

changes

in

the

status of

related

parties during 2022.

From

time

to

time,

the

Corporation,

in

the

ordinary

course

of

its

business,

obtains

services

from

related

parties

or

makes

contributions to non-profit organizations that have some association

with the Corporation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

60

NOTE 9 – GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill

as

of

each

of

December

31,

2022

and

December

31,

2021

amounted

to

$

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.

As

a

result,

no

impairment

charges

for

goodwill

were

recorded

during

the

year

ended December 31, 2022.

There were

no

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)

53

74

(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.

No

acquisition expenses were recognized

during

the

year

ended

December

31,

2022.

Acquisition,

integration,

and

restructuring

expenses

were

included

in

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,

as

well

as

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)

61

Other Intangible Assets

The

following

table

shows

the

gross

amount

and

accumulated

amortization

of

the

Corporation’s

intangible

assets

subject

to

amortization as of the indicated dates:

As of

As of

December 31,

December 31,

2022

2021

(Dollars in thousands)

Core deposit intangible:

Gross amount

$

87,544

$

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

$

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

$

1,067

Accumulated amortization

(1,054)

(902)

Net carrying amount

$

13

$

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)

62

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

as

sales

as

required

by

applicable accounting guidance.

When

evaluating

the

need

to

consolidate

counterparties

to

which

the

Corporation

has

transferred

assets,

or

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.

If

no

scope

exception

is

applicable

and

a

variable

interest

exists,

the

Corporation

then

evaluates

whether

it

is

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

by

the

Corporation

of

$

3.1

million

of

FBP

Statutory

Trust

I

variable-rate

common

securities, to

purchase

$

103.1

million

aggregate

principal

amount

of

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

In

September

2004,

FBP

Statutory

Trust

II,

a

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

of

related

issuance

costs,

are

presented

in

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).

As

of

each

of

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

I,

which resulted in

a commensurate reduction

in the related

Floating Rate Junior

Subordinated Debentures. The

Corporation’s purchase

price equated

to

75

% of

the $

0.4

million par

value. The

25

% 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)

63

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

a

series of

statutory

trusts

to

effect

the

securitization

of

mortgage

loans

and

the

sale

of

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

of

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

to

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

on

the

securities.

This

IO

is

limited

to

the

weighted-average

coupon

on

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,

as

the

sole

holder

of

the

securities,

absorbs

all

risks

from

losses

on

non-accruing

loans

and

repossessed

collateral.

As

of

December

31,

2022,

the

amortized

cost

and

fair

value

of

these

private

label

MBS

amounted

to

$

7.9

million

and

$

5.8

million,

respectively,

with

a

weighted

average

yield

of

6.83

%,

which

is

included

as

part

of

the

Corporation’s

available-for-sale debt securities portfolio.

As described in Note 3 – Debt Securities,

the ACL on these private label MBS amounted

to

$

0.1

million as of December 31, 2022.

Investment in Unconsolidated Entity

On

February

16,

2011,

FirstBank

sold

an

asset

portfolio

consisting

of

performing

and

nonaccrual

construction,

commercial

mortgage,

and

C&I

loans

with

an

aggregate

book

value

of

$

269.3

million

to

CPG/GS,

an

entity

organized

under

the

laws

of

the

Commonwealth of Puerto

Rico and majority

owned by PRLP Ventures

LLC (“PRLP”), a company

created by Goldman,

Sachs & Co.

and

Caribbean

Property

Group.

In

connection

with

the

sale,

the

Corporation

received

$

88.5

million

in

cash

and

a

35

%

interest

in

CPG/GS,

and

made

a

loan

in

the

amount

of

$

136.1

million

representing

seller

financing

provided

by

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

in

CPG/GS

is

accounted

for

under

the

equity

method.

FirstBank

recorded

a

loss

on

its

interest

in

CPG/GS in

2014 that

reduced to

zero the

carrying amount

of the

Bank’s

investment in

CPG/GS. No

negative investment

needs to

be

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

of

the

aforementioned

seller-financed

loan

to

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

12

%, 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

to

PRLP

and

FirstBank,

35

%

and

65

%,

respectively,

until

FirstBank

has

achieved

a

12

%

return

on

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

is

a

VIE

in

which

the

Bank

is

not

the

primary

beneficiary.

In

determining

the

primary

beneficiary

of CPG/GS,

the Bank

considered

applicable guidance

that requires

the Bank

to qualitatively

assess the

determination

of

whether

it is

the primary

beneficiary (or

consolidator)

of CPG/GS

based on

whether it

has both

the power

to direct

the activities

of

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)

64

Servicing Assets (MSRs)

The

Corporation

typically

transfers

first

lien

residential

mortgage

loans in

conjunction

with

GNMA

securitization

transactions

in

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

by

GNMA

and,

under

seller/servicer

agreements,

the

Corporation

is

required

to

service

the

loans

in

accordance

with

the

issuers’

servicing

guidelines

and

standards.

As

of

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

66

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

a

valuation

allowance

for

each

individual

stratum

of

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

$

78

$

202

$

73

Temporary impairment

charges

-

-

301

OTTI of servicing assets

-

-

(77)

Recoveries

(66)

(124)

(95)

Balance at end of year

$

12

$

78

$

202

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

65

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

%

12.0

%

12.0

%

Conventional conforming mortgage loans

10.0

%

10.0

%

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

%

12.0

%

12.0

%

Conventional conforming mortgage loans

10.0

%

10.0

%

10.0

%

Conventional non-conforming mortgage loans

12.3

%

14.5

%

12.0

%

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

66

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

10

% and

20

% adverse changes

in those assumptions

for mortgage loans

as of December

31, 2022 and

2021 were as follows:

December 31,

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)

67

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

on

total

interest-bearing

deposits

as

of

December 31,

2022

and

2021

was

1.03

%

and

0.31

%,

respectively.

As

of

December 31,

2022,

the

aggregate

amount

of

unplanned

overdrafts

of

demand

deposits

that

were

reclassified

as

loans

amounted

to

$

1.7

million

(2021

-

$

1.6

million).

Pre-arranged

overdrafts

lines

of

credit,

also

reported

as

loans,

amounted

to

$

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)

68

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

to

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

in

the

Virgin

Islands

(2021

-

$

568.4

million)

and

$

11.6

million

in

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

of

broker

placement

fees

related

to

brokered

CDs

amounting

to

$

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)

69

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

of

4.55

% as of December 31, 2022.

(2)

Weighted-average interest rate

of

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

to

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

in

the

first

quarter

of

2022

and

the

remaining

$

200.0

million

were

repaid

prior

to

maturity

upon

the

exercise

of

the

counterparty’s

call

option

in

the

fourth

quarter

of

2022.

In

addition,

the

Corporation

added

$

75.1

million

in

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)

70

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

As

of

December

31,

2022

and

2021,

the

securities

underlying

such

agreements

were

delivered

to

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

24

–

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

1

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

71

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,

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

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

of

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

or

Treasury

or

U.S.

agencies

MBS

collateral,

as

applicable.

The

amount

of

collateral

required

for

an

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,

as

computed

by

the

FHLB

for

collateral

purposes,

which

represents

a

haircut

of

14

%

and

17

%

as

of

December

31,

2022

and

2021,

respectively.

The

carrying

value

of

such

loans

as

of

December

31,

2022

amounted

to

$

1.8

billion

(2021

-

$

1.8

billion).

As

of

December

31,

2022,

the

estimated

value

of

U.S.

government-sponsored

agencies’

obligations

and

U.S.

agencies

MBS

pledged

as

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.

In

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

to

the

applicable

advance;

(ii)

the

financial

characteristics,

in

their

entirety,

of

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)

72

NOTE 14 – OTHER BORROWINGS

Junior Subordinated Debentures

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

December 31,

December 31,

(In thousands)

2022

2021

Floating rate junior subordinated debentures (FBP Statutory Trust

I)

(1) (3)

$

65,205

$

65,205

Floating rate junior subordinated debentures (FBP Statutory Trust

II)

(2)(3)

118,557

118,557

$

183,762

$

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

in

the

BIC

Program

of

the

FED.

Through

the

BIC

Program,

a

broad

range

of

loans

(including

commercial,

consumer,

and residential

mortgages)

may be

pledged as

collateral for

borrowings through

the FED

Discount Window.

As

of

December

31,

2022,

pledged

collateral

that

is

related

to

this

credit

facility

amounted

to

$

2.2

billion,

mainly

commercial,

consumer,

and

residential

mortgage

loans,

which

after

a

margin

“haircut”

to

discount

the

value

of

collateral

pledged,

represents

approximately $

1.3

billion of credit

availability under

this program.

The FED Discount

Window program

provides the opportunity

to

access a

low-rate short-term

source of

funding in

a high

volatility market

environment. There

were

no

outstanding borrowings

under

the FED Discount Window as of December 31,

2022 and 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

73

NOTE 15 – EARNINGS PER COMMON

.

SHARE

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

Shares:

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

share

is

computed

by

dividing

net

income

attributable

to

common

stockholders

by

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

is

used

to

repurchase

shares

on

the

open

market

at

the

average

market

price

for

the

period.

The

difference

between

the

number

of

potential

dilutive

shares

issued

and

the

shares

purchased

is

added

as

incremental

shares

to

the

actual

number

of

shares

outstanding

to

compute

diluted

earnings

per

share.

Unvested

shares

of

restricted

stock

outstanding

during

the

period

that

result

in

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock

method are not

included in

the computation

of

dilutive

earnings

per

share

since

their

inclusion

would

have an

antidilutive

effect

on

earnings

per

share.

There

were

no

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)

74

NOTE 16 – STOCK-BASED

.

COMPENSATION

On

April

29,

2008,

the

Corporation’s

stockholders

approved

the

Omnibus

Plan.

An

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

of

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

of

the

performance

goals under

the

Omnibus

Plan

for

purposes

of

the

then-effective

Section

162(m)

of

the

U.S.

Internal

Revenue

Code

of

1986,

as

amended.

The

Omnibus

Plan

provides

for

equity-based

and

non

equity-based

compensation

incentives

(the

“awards”).

The

Omnibus

Plan

authorizes

the

issuance

of

up

to

14,169,807

shares

of

common

stock,

subject

to

adjustments

for

stock

splits,

reorganizations

and

other

similar

events.

As

of

December

31,

2022,

there

were

3,830,165

authorized

shares

of

common

stock

available

for

issuance

under

the

Omnibus

Plan.

The

Corporation’s

Board

of

Directors,

based

on

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

to

the

shares

of

restricted

stock

granted

to

them.

The

fair

value

of

the

shares

of

restricted

stock

granted

was

based

on

the

market

price

of

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

(

50

%) of

those shares

vest on

the

two-year

anniversary of

the grant

date and

the remaining

50

% vest

on

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,

of

stock-based

compensation

expense

related

to

restricted

stock

awards.

As

of

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)

75

Performance Units

Under the Omnibus Plan, the Corporation may award

performance units to participants, with each unit representing

the value of one

share

of

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

of

the

performance

units

awarded

were

based

on

the

market

price

of

the

Corporation’s

common

stock

on

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

be

achieved.

The

Corporation

will

recognize

a

cumulative

adjustment

to

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

of

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

of

stock-based

compensation

expense

related to unrestricted stock awards. There were

no

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)

76

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

of

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 $

50

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

be

executed

through

open

market

purchases,

accelerated

share

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

of

capital,

stock

trading

price,

and

general

market

conditions.

The

repurchase

program

may

be

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

shares

of

common

stock

through

open

market

transactions

at

an

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

shares

for

a

total

purchase

price

of

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

on

shares

of

common

stock

amounted

to

$

88.2

million,

$

65.4

million,

and

$

43.8

million,

respectively.

On

February 9, 2023

the

Corporation

announced

that

its

Board

of

Directors

had

declared

a

quarterly

cash

dividend

of

$

0.14

per

common

share,

which

represents

an

increase

of

17

%

or

$

0.02

per

common

share

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

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 to consideration and approval by the Corporation’s

Board Directors at the relevant times.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

77

Preferred Stock

The

Corporation

has

50,000,000

authorized

shares

of

preferred

stock

with

a

par value

of $

1.00

,

redeemable

at

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.

On

November

30,

2021,

the

Corporation

redeemed

all

of

its

1,444,146

then

outstanding

shares

of

Series

A

through

E

Preferred

Stock for

its liquidation

value of

$

25

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.

No

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

of

1933,

as

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

a

minimum

of

10

%

of

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

on

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

as

part

of

retained

earnings

in

the

Corporation’s

consolidated

statements

of

financial

condition,

amounted

to

$

168.5

million

and

$

137.6

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

78

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

3

1

-

Total before tax

$

3

$

1

$

(13,198)

Income tax expense

(1)

-

-

Total, net of tax

$

2

$

1

$

(13,198)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

79

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

of

an

institution

previously

acquired

by

BSPR.

Benefits

are

based

on

salary

and

years

of

service.

The

accrual

of

benefits

under

the

Pension Plans is frozen to all participants.

The

Corporation

requires

recognition

of

a

plan’s

overfunded

and

underfunded

status

as

an

asset

or

liability

with

an

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

is

estimated

as

the

single

equivalent

rate

such

that

the

present

value

of

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.

In

developing

the

expected

long-term

rate

of

return

assumption,

the

Corporation

evaluated

input

from

a

consultant

and

the

Corporation’s

long-term inflation

assumptions and

interest rate

scenarios. Projected

returns are

based on

the same

asset categories

as

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

to

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)

80

The following

table presents

information

for

the plans

with a

projected

benefit obligation

and accumulated

benefit obligation

in

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

8

6

2

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

1,

2020

to

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)

81

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

to

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

3

1

-

Net amount recognized

$

(3,515)

$

5,860

$

(432)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

82

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

3%

2%

100%

100%

As

of

December

31,

2022

and

2021,

substantially

all

of

the

plan

assets

of

$

77.2

million

and

$

103.5

million,

respectively,

were

invested

in

common

collective

trusts,

which

primarily

consist of

equity

securities,

mortgage-backed

securities,

corporate

bonds

and

U.S.

Treasuries.

The

portfolios

in

both

plans

have

been

measured

at

fair

value

using

the

net

asset

value

per

unit

as

a

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

of

money

market

accounts with

short-term

maturities and,

therefore,

the carrying value approximates fair value.

The Corporation does

no

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

is

diversified

in

multiple

asset

classes

to

reduce

portfolio

risk,

and

assets

may

be

shifted

between

asset

classes

to

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

be

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)

83

Defined Contribution Plan

In

addition,

FirstBank

provides

contributory

retirement

plans

pursuant

to

Section 1081.01

of

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

6

% 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

to

the

Plans

may

be

voluntarily

made

by

the

Bank

as

determined

by its

Board of

Directors.

No

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).

On

September

1,

2020,

the

Bank

completed

the

acquisition

of

Santander

Bancorp,

a

wholly-owned

subsidiary

of

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

6

% of the employee’s compensation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

84

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)

38

Gain from sales of fixed assets

924

32

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)

85

NOTE 22 –

INCOME TAXES

Income

tax

expense

includes

Puerto

Rico

and

USVI

income

taxes,

as

well

as

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

PR

Code,

the

Corporation

and

its

subsidiaries

are

treated

as

separate

taxable

entities

and

are

not

entitled

to

file

consolidated

tax

returns

and,

thus,

the

Corporation

is

generally

not

entitled

to

utilize

losses

from

one

subsidiary

to

offset

gains

in

another

subsidiary.

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

1,

2013 is 12 years;

for NOLs incurred during

taxable years commencing after

December 31, 2012, the

carryover period is 10

years. 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

an

effective

tax

rate

lower

than

the

Puerto

Rico

maximum

statutory

rate

of

37.5

%

mainly

by

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

on

the

specific

activities

identified

in

the

IBE

Act.

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.

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)

86

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

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

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.

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

of

positive

and

negative

evidence

that

can

be

objectively

verified.

Consideration

must

be

given

to

all

sources

of

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

of

the

Corporation’s

banking

subsidiary,

FirstBank,

amounted

to

$

155.6

million

as

of

December

31,

2022,

net

of

a

valuation

allowance

of

$

149.5

million,

compared

to

a

net

deferred

tax

asset

of

$

208.4

million,

net

of

a

valuation

allowance

of

$

69.7

million,

as

of

December

31,

2021.

The

decrease

in

the

deferred

tax

assets

was

mainly

driven

by

the

usage

of

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

of

available-for-sale

debt

securities.

Thus,

the

change

in

the

market

value

of

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

of

future

taxable

income

is

based

on

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.

If

actual

results

differ

significantly

from

the

current

estimates

of

future

taxable

income,

even

if

caused

by

adverse

macro-economic

conditions,

the

remaining

valuation

allowance

may

need

to

be

increased.

Such

an

increase

could

have

a

material adverse effect on the Corporation’s

financial condition and results of operations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

87

As of December

31, 2022, approximately

$

279.9

million of the

deferred tax

assets of the

Corporation are

attributable to temporary

differences

or

tax

credit

carryforwards

that

have

no

expiration

date,

compared

to

$

177.9

million

in

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

it

is

more

likely

than

not

the

deferred

tax

assets

will

be

realized.

The

ability

to

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,

of

the

$

72.5

million

of

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.

In

2017,

the

Corporation

completed

a

formal

ownership

change

analysis

within

the

meaning

of

Section

382

of

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

in

higher

U.S.

and

USVI

income

tax

liabilities

that

we

would

have

incurred

in

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

in

the

U.S.

or

USVI

can

be

creditable

against

Puerto

Rico

tax

liabilities

or

taken

as

a

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

at

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

to

U.S.

corporations

with

average

adjusted

financial

statement

income

over

a

three-year

period

in

excess

of

$1

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,

if

recognized,

would

decrease

the

effective

income

tax

rate

in

future

periods.

During

2022,

a

$

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

or

decrease

in

the

future

for

various

reasons,

including

adding

amounts

for

current

tax

year

positions,

expiration

of

open

income

tax returns

due

to the

statute of

limitations,

changes

in management’s

judgment about

the level

of uncertainty,

the status

of

examinations,

litigation

and

legislative activity,

and

the addition

or elimination

of uncertain

tax positions.

The statute

of 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

is

three

years

after

a

tax

return

is

due

or

filed,

whichever

is

later.

The

completion

of

an

audit

by

the

taxing

authorities

or

the

expiration

of

the

statute

of

limitations

for

a

given

audit

period

could

result

in

an

adjustment

to

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

to

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)

88

NOTE 23

–

OPERATING

LEASES

The

Corporation

accounts

for

its

leases

in

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

to

30 years

, some of

which

include

options

to

extend

the

leases

for

up

to

ten years

.

Liabilities

to

make

future

lease

payments

are

recorded

in

accounts

payable

and

other

liabilities,

while

right-of-use

(“ROU”)

assets

are

recorded

in

other

assets

in

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

As of

December 31,

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

in

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

Year Ended

Year Ended

December 31,

December 31,

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

no

lease

terminations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

89

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

an

undiscounted contract amount of $

1.1

million, which will have lease terms ranging from

five

to

ten years

.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

90

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

of

the

Corporation’s

interest

rate

risk

management

activities

is

to

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

of

to-be-announced

(“TBA”)

MBS

that

will

settle

over

the

standard

delivery

date

and

do

not

qualify

as

“regular

way”

security

trades.

Regular-way

security

trades

are

contracts

that

have

no

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

by

regulations

or

conventions

in

the

marketplace

or

exchange

in

which

the

transaction

is

being

executed.

The forward

sales are

considered

derivative

instruments

that need

to be

marked

to market.

The Corporation

uses these

securities

to

economically

hedge

the

FHA/VA

residential

mortgage

loan

securitizations

of

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

an

agreement

between

two

entities

to

exchange

cash

flows

in

the

future.

The

agreements

acquired

from

BSPR

consist

of

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

of

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.

To

satisfy

the

needs

of

its

customers,

the

Corporation

may

enter

into

non-hedging

transactions.

In

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)

91

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,

December 31,

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

14,500

Other assets

-

-

Accounts payable and other liabilities

197

8

Purchased interest rate cap agreements

14,500

14,500

Other assets

199

8

Accounts payable and other liabilities

-

-

Interest rate lock commitments

3,225

12,097

Other assets

63

379

Accounts payable and other liabilities

-

-

Forward Contracts:

Sales of TBA GNMA MBS pools

11,000

27,000

Other assets

58

-

Accounts payable and other liabilities

1

78

Forward loan sales commitments

-

12,668

Other assets

-

20

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

$

28

$

24

$

27

Written and purchased interest rate cap agreements

Interest income - loans

2

-

-

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

to

market

risk.

As

is

the

case

with

investment

securities,

the

market

value

of

derivative

instruments

is largely

a

function

of

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)

92

Credit and Market Risk of Derivatives

The

Corporation

uses

derivative

instruments

to

manage

interest

rate

risk.

By

using

derivative

instruments,

the

Corporation

is

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

by

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

a

provision

for

netting.

The

Corporation

has

a

policy

of

diversifying

derivatives

counterparties

to

reduce

the

consequences

of

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.

In

accordance

with

the

master

agreements,

in

the

event

of

default,

each

party

has

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,

derivatives

were

overcollateralized.

See

Note

12

–

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)

93

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

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 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

of

Level

1

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

Va

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

Va

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

or

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

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 certain private label MBS held by the

Corporation (Level 3).

Derivative instruments

The

fair

value

of

most

of

the

Corporation’s

derivative

instruments

is

based

on

observable

market

parameters

and

takes

into

consideration

the

credit

risk

component

of

paying

counterparties,

when

appropriate.

On interest

caps,

only

the

seller's

credit

risk

is

considered.

The

Corporation

valued

the

interest

rate

swaps

and

caps

using

a

discounted

cash

flow

approach

based

on

the

related

LIBOR and swap forward rate for each cash flow.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

94

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

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

$

-

$

-

$

138,875

$

148,486

$

-

$

-

$

148,486

Noncallable U.S. agencies debt securities

-

389,787

-

389,787

-

285,028

-

285,028

Callable U.S. agencies debt securities

-

1,963,566

-

1,963,566

-

1,971,954

-

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

2,201

-

-

2,850

2,850

Other investments

-

-

500

500

-

-

1,000

1,000

Equity securities

4,861

-

-

4,861

5,378

-

-

5,378

Derivative assets

-

633

-

633

-

1,505

-

1,505

Liabilities:

Derivative liabilities

-

476

-

476

-

1,178

-

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)

95

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%

16.2%

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%

12.9%

12.9%

Projected cumulative loss rate

19.3%

19.3%

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%

12.9%

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%

8.6%

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

in

isolation

would

generally

result

in

an

adverse

effect

on

the

fair

value

of

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

a

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

of

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

as

regional

unemployment

rates,

the

housing

price

index,

and

expected

recovery

of

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)

96

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

to

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)

97

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

$

480,505

$

480,505

$

-

$

-

Available-for-sale debt securities (fair value)

5,599,520

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

50,428

-

50,428

(1)

-

Other equity securities (fair value)

4,861

4,861

4,861

-

-

Loans held for sale (lower of cost or market)

12,306

12,306

-

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

-

-

11,106,809

MSRs (amortized cost)

29,037

44,710

-

-

44,710

Derivative assets (fair value)

(2)

633

633

-

633

-

Liabilities:

Deposits

(amortized cost)

$

16,143,467

$

16,139,937

$

-

$

16,139,937

$

-

Securities sold under agreements to repurchase

(amortized cost)

75,133

75,230

-

75,230

-

Advances from FHLB (amortized cost)

675,000

674,596

-

674,596

-

Other borrowings (amortized cost)

183,762

187,246

-

-

187,246

Derivative liabilities (fair value)

(2)

476

476

-

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)

98

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

$

2,543,058

$

2,543,058

$

-

$

-

Available-for-sale debt securities (fair value)

6,453,761

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

-

-

167,147

Equity securities (amortized cost)

26,791

26,791

-

26,791

(1)

-

Other equity securities (fair value)

5,378

5,378

5,378

-

-

Loans held for sale (lower of cost or market)

35,155

36,147

-

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

-

-

10,900,400

MSRs (amortized cost)

30,986

42,132

-

-

42,132

Derivative assets (fair value)

(2)

1,505

1,505

-

1,505

-

Liabilities:

Deposits (amortized cost)

$

17,784,894

$

17,800,706

$

-

$

17,800,706

$

-

Securities sold under agreements to repurchase

(amortized cost)

300,000

322,105

-

322,105

-

Advances from FHLB (amortized cost)

200,000

202,044

-

202,044

-

Other borrowings (amortized cost)

183,762

177,689

-

-

177,689

Derivative liabilities (fair value)

(2)

1,178

1,178

-

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

as

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

of

assumptions

and

judgment

about

a

wide

variety

of

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

of

promised

goods

or

services

is

transferred

to

customers

and

in

an

amount

that

reflects

the

consideration

to

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

or

service

is

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)

99

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

-

-

15

995

13,743

Merchant-related income

-

6,622

1,483

-

74

1,335

9,514

Credit and debit card fees

-

29,061

85

-

(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)

58

35

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

-

51

1,055

8,464

Credit and debit card fees

-

26,360

83

-

19

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

-

-

52

558

9,364

Merchant-related income

-

4,516

478

-

41

809

5,844

Credit and debit card fees

-

18,218

62

-

16

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)

100

For

2022,

2021,

and

2020,

most

of

the

Corporation’s

revenue

within

the

scope

of

ASC

Topic

606

was

related

to

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

to

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

do

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

to

the

Corporation’s

insurance

agency,

the

agreements

contain

a

performance

obligation

related

to

the

sale/issuance

of

the

policy

and

ancillary

administrative

post-issuance

support.

The performance

obligations

are

satisfied

when

the policies

are

issued, and

revenue

is recognized

at

that point

in

time.

In

addition,

contingent

commission

income

may

be

considered

to

be

constrained,

as

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

at

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

of

income

recognition

included

the

consideration

of

a

2015

sale

of

merchant

contracts

that

involved

sales

of

point

of

sale

(“POS”)

terminals

and

a

marketing

alliance

under

a

revenue-sharing

agreement.

The

Corporation

concluded

that

control

of

the

POS

terminals

and

merchant

contracts

was

transferred

to

the

customer

at

the

contract’s

inception.

With

respect

to

the

related

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

to

reward

program

members,

such

as

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

on

points

earned

to

date

that

the

Corporation

expects

to

be

redeemed

and

the

average

cost

per

point

redemption.

The

reward

liability

is

reduced

as

points

are

redeemed.

In

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

of

all points

earned

will eventually

be

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

on

a

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)

101

Contract Balances

A

contract

liability

is

an

entity’s

obligation

to

transfer

goods

or

services

to

a

customer

in

exchange

for

consideration

from

the

customer.

FirstBank

participates

in

a

merchant

revenue-sharing

agreement

with

another

entity

to

which

the

Bank

sold

its

merchant

contracts

portfolio

and

related

POS

terminals

and

a

growth

agreement

with

an

international

card

service

association

to

expand

the

customer

base

and

enhance

product

offerings.

FirstBank

recognizes

the

revenue

under

these

agreements

over

time,

as

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

no

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

or

estimates in recognizing revenue for financial reporting purposes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

102

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

on

the

Corporation’s

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

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

on

the

internal

structure

used

to

evaluate

performance

and

to

assess

where

to

allocate

resources.

Other

factors,

such

as

the

Corporation’s

organizational

chart,

nature

of

the

products,

distribution

channels,

and

the

economic

characteristics

of

the

products,

were

also

considered in the determination of the reportable segments.

The

Mortgage

Banking

segment

consists

of

the

origination,

sale,

and

servicing

of

a

variety

of

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,

as

well

as

other

products,

such

as

cash

management

and

business

management

services.

The

Treasury

and

Investments

segment

is

responsible

for

the

Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

to

manage

and

enhance

liquidity.

This

segment

lends

funds

to

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking,

and

the

United

States

Operations

segments

to

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

of

the

segments

are

the

same

as

those

referred

to

in

Note

1

–

Nature

of

Business

and

Summary

of

Significant Accounting Policies.

The

Corporation

evaluates

the

performance

of

the

segments

based

on

net

interest

income,

the

provision

for

credit

losses,

non-

interest

income

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

on

the

average

volume

of

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)

103

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)

104

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)

105

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)

106

NOTE 29 – REGULATORY

MATTERS, COMMITMENTS,

AND CONTINGENCIES

Regulatory Matters

The

Corporation

and

FirstBank

are

each

subject

to

various

regulatory

capital

requirements

imposed

by

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

of

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

to

be

considered

a

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

to

maintain

an

additional

capital

conservation

buffer

of

2.5

%

on

certain

regulatory

capital

ratios

to

avoid

limitations

on

both

(i)

capital

distributions

(

e.g.

,

repurchases

of

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

to

temporarily

delay

the

effects

of

CECL

on

regulatory

capital

for

two

years,

followed

by

a

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

25

% 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

at

25

%

per

year

beginning

on

January

1,

2022

over

a

three-year

period,

resulting

in

a

total

transition

period

of

five

years.

Accordingly,

as

of

December

31,

2022,

the

capital

measures

of

the

Corporation

and

the

Bank

included

$

16.2

million associated

with the

CECL day

one impact

to retained

earnings plus

25

% 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

to

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)

107

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

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

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

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

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

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

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

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

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).

As

of

December 31,

2022

and

2021,

the

Bank

complied

with

the

requirement.

Cash

and

due

from

banks

as

well

as

other

highly

liquid

securities

are

used

to

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

to

credit

loss

in

the

event

of

nonperformance

by

the

other

party

to

the

financial

instrument

on

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)

108

In

general,

commercial

and

standby

letters

of

credit

are

issued

to

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

of

credit

includes

cash

or

available

commercial

lines

of

credit.

The

fair

value

of

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

in

the

ordinary

course

of

business.

On

at

least

a

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

a

loss

and

the

amount

can

be

reasonably

estimated,

the

Corporation

establishes

an

accrual

for

the

loss.

Once

established,

the

accrual

is

adjusted

as

appropriate

to

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

to

be

determined,

the

numerous

unresolved

issues

in

the

proceedings,

and

the

inherent

uncertainty

of

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

of

legal

proceedings,

claims,

and

other

loss

contingencies

is

inherently

uncertain,

based

on

information

currently

available,

management

believes

that

the

final

disposition

of

the

Corporation’s

legal

proceedings,

claims

and

other

loss

contingencies,

to

the

extent

not

previously

provided

for,

will

not

have

a

material

adverse

effect

on

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

of

any

accrual)

will

be

incurred

in

connection

with

any

legal

contingencies,

the

Corporation

discloses

an

estimate

of

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)

109

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

1,951

Investment in FBP Statutory Trust II

3,561

3,561

Dividends receivable

624

295

Other assets

430

71

Total assets

$

1,519,376

$

2,293,724

Liabilities and Stockholders' Equity

Liabilities:

Other borrowings

$

183,762

$

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)

110

Statements of Income

Year

Ended December 31,

2022

2021

2020

(In thousands)

Income

Interest income on money market investments

$

79

$

51

$

71

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

-

-

94

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)

111

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

8

million shares of its

preferred stock for a total price of approximately $

200

million.

PART

IV

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

of

First

BanCorp.,

together

with

the

reports

thereon

of

First

BanCorp.’s

independent registered

public accounting

firm, Crowe LLP

(PCAOB ID No.

173),

dated February 28,

2023, are included

in Item 8

of

this Annual Report on Form 10-K/A:

– 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

112

– 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/A and are meant to

supplement the Exhibits listed and/or filed with the Original Report.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

113

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, incorporated by reference from Exhibit 4.1 of the Form 10-K for the year ended December 31,

2022, filed on February 28, 2023.

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, incorporated by reference from Exhibit 10.2 of the Form 10-K for the year ended December 31,

2022, filed on February 28, 2023.

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, incorporated by reference from Exhibit 21.1 of the Form 10-K for the year ended December 31, 2022,

filed on February 28, 2023.

23.1

Consent of Crowe LLP, incorporated by reference from Exhibit 23.1 of the Form 10-K for the year ended December 31, 2022, filed on

February 28, 2023.

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.

**Filed herewith.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

114

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/ Orlando Berges

Date: 10/13/2023

Orlando Berges, CPA

Executive Vice President and Chief Financial Officer

exhibit311

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

1

EXHIBIT

31.1

I, Aurelio Alemán, certify that:

1.

I have reviewed this Form 10-K/A of First BanCorp.;

2.

Based on

my knowledge,

this report

does not

contain any

untrue statement

of a

material fact

or omit

to state

a material

fact

necessary to make the statements made, in light of the

circumstances under which such statements were made, not

misleading

with respect to the period covered by this report;

3.

Based on my

knowledge, the financial

statements, and other

financial information included

in this report,

fairly present in

all

material

respects

the

financial

condition,

results

of

operations

and

cash

flows

of

the

registrant

as

of,

and

for,

the

periods

presented in this report;

4.

The

registrant's

other

certifying

officer

and

I

are

responsible

for

establishing

and

maintaining

disclosure

controls

and

procedures

(as

defined

in

Exchange

Act

Rules

13a-15(e)

and

15d-15(e))

and

internal

control

over

financial

reporting

(as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure

controls and procedures,

or caused such disclosure

controls and procedures

to be designed

under

our

supervision,

to

ensure

that

material

information

relating

to

the

registrant,

including

its

consolidated

subsidiaries, is

made known

to us by

others within

those entities, particularly

during the

period in

which this

report

is being prepared;

(b)

Designed such internal control over

financial reporting, or caused such

internal control over financial reporting

to be

designed under

our supervision,

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;

(c)

Evaluated

the

effectiveness

of

the

registrant's

disclosure

controls

and

procedures,

and

presented

in

this

report

our

conclusions about the

effectiveness of the

disclosure controls and

procedures, as of the

end of the period

covered by

this report based on such evaluation; and

(d)

Disclosed in

this report

any change

in the

registrant’s

internal control

over financial

reporting that

occurred during

the registrant’s

most recent

fiscal quarter

(the registrant’s

fourth

fiscal quarter

in the

case of

an annual

report) that

has

materially

affected,

or

is

reasonably

likely

to

materially

affect,

the

registrant’s

internal

control

over

financial

reporting; and

5.

The

registrant's

other

certifying

officer

and

I

have

disclosed,

based

on

our

most

recent

evaluation

of

internal

control

over

financial

reporting,

to

the

registrant's

auditors

and

the

audit

committee

of

the

registrant's

board

of

directors

(or

persons

performing the equivalent functions):

(a)

All

significant

deficiencies

and

material

weaknesses

in

the

design

or

operation

of

internal

control

over

financial

reporting

which

are reasonably

likely

to

adversely

affect

the registrant's

ability

to

record,

process,

summarize

and

report financial information; and

(b)

Any fraud, whether

or not material, that

involves management or other

employees who have a

significant role in the

registrant's internal control over financial reporting.

Date: October 13, 2023

By:

/s/ Aurelio Alemán

Aurelio Alemán

President and Chief Executive Officer

exhibit312

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

1

EXHIBIT

31.2

I, Orlando Berges, certify that:

1.

I have reviewed this Form 10-K/A of First BanCorp.;

2.

Based on

my knowledge,

this report

does not

contain any

untrue statement

of a

material fact

or omit

to state

a material

fact

necessary to make the statements made, in light of the

circumstances under which such statements were made,

not misleading

with respect to the period covered by this report;

3.

Based on my

knowledge, the financial

statements, and other

financial information included

in this report,

fairly present in

all

material

respects

the

financial

condition,

results

of

operations

and

cash

flows

of

the

registrant

as

of,

and

for,

the

periods

presented in this report;

4.

The

registrant's

other

certifying

officer

and

I

are

responsible

for

establishing

and

maintaining

disclosure

controls

and

procedures

(as

defined

in

Exchange

Act

Rules

13a-15(e)

and

15d-15(e))

and

internal

control

over

financial

reporting

(as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure

controls and procedures, or

caused such disclosure controls

and procedures to

be designed

under

our

supervision,

to

ensure

that

material

information

relating

to

the

registrant,

including

its

consolidated

subsidiaries, is made known to us by others within those entities, particularly during the period in which this report

is

being prepared;

(b)

Designed such internal control over

financial reporting, or caused such

internal control over financial reporting to

be

designed under our supervision, 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;

(c)

Evaluated

the

effectiveness

of

the

registrant's

disclosure

controls

and

procedures,

and

presented

in

this

report

our

conclusions about the

effectiveness of the

disclosure controls and

procedures, as of the

end of the period

covered by

this report based on such evaluation; and

(d)

Disclosed in

this report

any change

in the

registrant’s

internal control

over financial

reporting that

occurred during

the

registrant’s

most

recent

fiscal

quarter

(the

registrant’s

fourth

quarter

in

the

case

of

an

annual

report)

that

has

materially

affected,

or

is

reasonably

likely

to

materially

affect,

the

registrant’s

internal

control

over

financial

reporting; and

5.

The

registrant's

other

certifying

officer

and

I

have

disclosed,

based

on

our

most

recent

evaluation

of

internal

control

over

financial

reporting,

to

the

registrant's

auditors

and

the

audit

committee

of

the

registrant's

board

of

directors

(or

persons

performing the equivalent functions):

(a)

All

significant

deficiencies

and

material

weaknesses

in

the

design

or

operation

of

internal

control

over

financial

reporting

which

are reasonably

likely

to

adversely

affect

the registrant's

ability

to

record,

process,

summarize

and

report financial information; and

(b)

Any fraud, whether

or not material, that

involves management or other

employees who have a

significant role in the

registrant's internal control over financial reporting.

Date: October 13, 2023

By:

/s/ Orlando Berges

Orlando Berges

Executive Vice President

and

Chief Financial Officer

exhibit321

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

1

CERTIFICATION

EXHIBIT

32.1

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 Title 18,

United States Code)

Pursuant to

Section 906 of

the Sarbanes-Oxley

Act of 2002

(subsections (a) and

(b) of Section

1350, Chapter 63

of Title

18,

United

States Code),

the undersigned

officer

of First

BanCorp.,

a Puerto

Rico corporation

(the “Company”),

does hereby

certify,

to

such officer’s knowledge, that:

The

Annual

Report

on

Form

10-K/A

for

the

year

ended

December

31,

2022

(the

“Form

l0-K/A”)

of

the

Company

fully

complies

with

the

requirements

of

section

l3(a)

or

15(d)

of

the

Securities

Exchange

Act

of

1934

and

information

contained

in

the

Form 10-K/A fairly presents, in all material respects, the financial condition

and results of operations of the Company.

Date: October 13, 2023

/s/ Aurelio Alemán

Name: Aurelio Alemán

Title: President and Chief Executive Officer

exhibit322

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

1

CERTIFICATION

EXHIBIT

32.2

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 Title 18,

United States Code)

Pursuant to

Section 906 of

the Sarbanes-Oxley

Act of 2002

(subsections (a) and

(b) of Section

1350, Chapter 63

of Title

18,

United

States Code),

the undersigned

officer

of First

BanCorp.,

a Puerto

Rico corporation

(the “Company”),

does hereby

certify,

to

such officer’s knowledge, that:

The

Annual

Report

on

Form

10-K/A

for

the

year

ended

December

31,

2022

(the

“Form

l0-K/A”)

of

the

Company

fully

complies

with

the

requirements

of

section

l3(a)

or

15(d)

of

the

Securities

Exchange

Act

of

1934

and

information

contained

in

the

Form 10-K/A fairly presents, in all material respects, the financial condition

and results of operations of the Company.

Date: October 13, 2023

/s/ Orlando Berges

Name: Orlando Berges

Title: Executive Vice

President and Chief Financial Officer