fbp-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

____________

FORM

10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2022

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ___________________ to

___________________

COMMISSION FILE NUMBER

001-14793

FIRST BANCORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED

IN ITS CHARTER)

Puerto Rico

66-0561882

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1519 Ponce de León Avenue, Stop 23

San Juan

Puerto Rico

(Address of principal executive offices)

00908

(Zip Code)

(

787

)

729-8200

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 per share)

FBP

New York Stock Exchange

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

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

Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant

was required to file such reports), and (2) has been subject

to such filing requirements for the past 90

days.

Yes

☑

Indicate by check mark whether the registrant has submitted electronically

every Interactive Data File required to be submitted pursuant

to Rule 405 of Regulation S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for

such shorter period that the registrant was required

to submit such files).

Yes

☑

Indicate by check mark whether the registrant is a large accelerated

filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company.

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”

in Rule 12b-2 of

the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to

use the extended transition period for complying with any

new or revised

financial accounting standards provided pursuant to Section 13(a)

of the Exchange Act.

Indicate by check mark whether the registrant is a shell company

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

Yes

☐

☑

Indicate the number of shares outstanding of each of the

issuer’s classes of common stock, as of the latest practicable date.

Common stock:

184,611,527

shares outstanding as of October 31, 2022.

FIRST BANCORP.

INDEX PAGE

PART

I. FINANCIAL INFORMATION

PAGE

Item 1. Financial Statements:

Consolidated Statements of

Financial Condition

(Unaudited) as of

September 30, 2022

and December 31,

2021

Consolidated Statements of Income (Unaudited) – Quarters ended

September 30, 2022 and 2021 and nine-

month periods ended September 30, 2022 and 2021

Consolidated

Statements of

Comprehensive (Loss)

Income (Unaudited)

– Quarters

ended September

30,

2022 and 2021 and nine-month periods ended September 30, 2022 and 2021

Consolidated Statements of Cash Flows (Unaudited) – Nine-month

periods ended September 30, 2022 and

2021

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited) – Quarters ended September 30,

2022 and 2021 and nine-month periods ended September 30, 2022 and 2021

Notes to Consolidated Financial Statements (Unaudited)

Item 2. Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

142

Item 4. Controls and Procedures

142

PART

II. OTHER INFORMATION

Item 1.

Legal Proceedings

143

Item 1A. Risk Factors

143

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

144

Item 6.

Exhibits

145

SIGNATURES

Forward-Looking Statements

This Form 10-Q contains

forward-looking statements within

the meaning of Section

27A of the Securities Act

of 1933, as amended

(the “Securities Act”),

and Section 21E

of the Securities

Exchange Act

of 1934, as

amended (the

“Exchange Act”),

which are subject

to the safe harbor created by such sections. When used

in this Form 10-Q or future filings by

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

“us,” or “our”)

with the U.S.

Securities and

Exchange Commission (the

“SEC”), in the

Corporation’s

press releases or

in other public

stockholder

communications

made

the

Corporation,

oral

statements

made

behalf

the

Corporation

by,

with

the

approval of, an

authorized executive officer,

the words or

phrases “would,” “intends,”

“will,” “expect,”

“should,” “plans,”

“forecast,”

“anticipate,” “look forward,”

“believes,” and other

terms of similar meaning

or import, or the

negatives of these terms

or variations of

them,

connection

with

any

discussion

future

operating,

financial

other

performance

are

meant

identify

“forward-looking

statements.”

The Corporation cautions readers

not to place undue reliance

on any such “forward-looking

statements,” which speak only as

of the

date

made,

and

advises

readers

that

these

forward-looking

statements

are

not

guarantees

future

performance

and

involve

certain

risks,

uncertainties,

estimates,

and

assumptions

that

are

difficult

predict.

Various

factors,

some

which

are

beyond

our

control, could cause actual results to differ materially from

those expressed in, or implied by,

such forward-looking statements.

Factors that could

cause results to

differ from

those expressed in

the Corporation’s

forward-looking statements

include, but are

not

limited to, risks

described

or referenced in

Part I, Item 1A.,

“Risk Factors,” in the

Corporation’s

Annual Report on

Form 10-K for the

year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”)

and the following:

●

the

impact

that

Hurricane

Fiona

will

have

the

economy

the

regions

impacted,

both

positive

and

negative,

for

the

Corporation’s

commercial and

retail customers,

which will

depend on

the extent to

which rebuilding

efforts and

disaster relief

money stimulate economic activity and the ultimate effect

on loan collection;

●

the impact

of rising

interest rates

and inflation

on the

Corporation, including

a decrease

in demand

for new

loan originations

and

refinancings,

increased

competition

for

borrowers,

attrition

deposits,

and

increase

non-interest

expenses

which

would

have

impact

the

Corporation’s

margins

and

may

have

adverse

impact

origination

volumes

and

financial

performance;

●

uncertainties

relating

the

duration

the

COVID-19

pandemic

and

its

impact

the

Corporation’s

business,

operations,

employees, credit quality,

financial condition and net income;

●

risks related to

the Corporation’s

participation in

government responses

or programs

related to the

COVID-19 pandemic,

such

as the

Small Business

Administration Paycheck

Protection Program

(“SBA PPP”)

established by

the Coronavirus

Aid, Relief,

and

Economic

Security

Act

of 2020,

as amended

(the

“CARES Act”),

including

any

judgments,

claims,

damages,

penalties,

fines

reputational

damage

resulting

from

claims

challenges

against

the

Corporation

governments,

regulators,

customers or otherwise, relating to the Corporation’s

participation in any such responses or programs;

●

the Corporation’s ability to

identify and prevent cyber-security incidents,

such as data security breaches, ransomware, malware,

“denial of service”

attacks, “hacking,” identity

theft and state-sponsored

cyberthreats, and the

occurrence of any

of which may

result in

misuse or

misappropriation of

confidential or

proprietary information

and could

result in

the disruption

or damage

our systems, increased costs and losses or an adverse effect

to our reputation;

●

general

competitive

factors,

industry

consolidation

and

other

market

risks

well

the

implementation

strategic

growth

opportunities, including risks, uncertainties and other factors or events to

any business acquisitions or dispositions;

●

uncertainty as to the

ultimate outcome of

the debt restructuring plan

of Puerto Rico (“Plan

of Adjustment” or “PoA”)

and 2022

Fiscal Plan

for Puerto

Rico as

certified by

the Financial

Oversight and

Management Board

for Puerto

Rico (“the

2022 Fiscal

Plan”),

any

revisions

it,

our

clients

and

loan

portfolios

and

any

potential

impact

from

future

economic

political

developments in Puerto Rico;

●

the

impact

that

slowdown

the

economy

and

increase

unemployment

underemployment

may

have

the

performance of our loan and lease portfolio,

the market price of our investment

securities, the availability of sources

of funding

and the demand for our products;

●

uncertainty

the

availability

wholesale

funding

sources,

such

securities

sold

under

agreements

repurchase,

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

of deposit (“brokered CDs”);

●

the effect

of deteriorating

economic

conditions in

the real

estate markets

and the

consumer

and commercial

sectors and

their

impact on

the credit

quality of

the Corporation’s

loans and

other assets,

which may

contribute to,

among other

things, higher

than targeted

levels of

non-performing assets,

charge-offs

and provisions

for credit

losses, and

may subject

the Corporation

further risk from loan defaults and foreclosures;

●

the impact

of changes

in accounting

standards or

assumptions in

applying those

standards, including

the continuing

impact of

the COVID-19 pandemic,

or geopolitical concerns, such

as the ongoing conflict

in Ukraine, on forecasts

of economic variables

considered

for

the

determination

the

allowance

for

credit

losses

(“ACL”)

required

the

current

expected

credit

losses

(“CECL”) accounting standard;

●

the ability

of the

Corporation’s

banking subsidiary,

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”) to

realize the

benefits

of its net deferred tax assets;

●

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

payments to the Corporation;

●

adverse

changes

general

economic

conditions

Puerto

Rico,

the

United

States

(“U.S.”),

the

U.S.

Virgin

Islands

(the

“USVI”),

and

the

British

Virgin

Islands

(the

“BVI”),

including

the

interest

rate

environment,

market

liquidity,

housing

absorption rates, real estate prices, and disruptions in

the U.S. capital markets, including as a result of past

or future widespread

health

emergencies,

natural

disasters

geopolitical

concerns,

such

the

ongoing

conflict

Ukraine,

which

may

reduce

interest

margins,

affect

funding

sources

and

demand

for

all

the

Corporation’s

products

and

services,

and

reduce

the

Corporation’s revenues and

earnings and the value of the Corporation’s assets;

●

the

effect

changes

the

interest

rate

environment,

including

uncertainty

about

the

effect

the

cessation

the

London

Interbank

Offered

Rate

(“LIBOR”),

which

could

adversely

affect

the

Corporation’s

results

operations,

cash

flows,

and

liquidity;

●

an adverse change in

the Corporation’s

ability to attract new clients,

retain existing ones, and

gain acceptance from current

and

prospective

customers

for

new products

and

services,

including

those related

the offering

of digital

banking

and

financial

services;

●

the

risk

that

additional

portions

the

unrealized

losses

the

Corporation’s

debt

securities

portfolio

are

determined

credit-related,

resulting

additional

charges

the

provision

for

credit

losses

the

Corporation’s

available-for-sale

debt

securities portfolio;

●

uncertainty

about legislative,

tax or

regulatory changes

that affect

financial services

companies in

Puerto

Rico, the

U.S., and

the USVI and BVI,

which could affect

the Corporation’s

financial condition or

performance and could cause

the Corporation’s

actual results for future periods to differ materially from prior

results and anticipated or projected results;

●

the effect

of changes

in the

fiscal and

monetary policies

and regulations

of the

U.S. federal

government

and the

Puerto Rico

and other

governments, particularly

in response

to rising

inflation, including

those determined

by the

Board of

the Governors

of the

Federal Reserve

System (the

“Federal Reserve

Board”), the

Federal Reserve

Bank of

New York

(the “New

York

FED”

or “Federal

Reserve”), the

Federal Deposit

Insurance Corporation

(the “FDIC”), governmen

t-sponsored housing

agencies, and

regulators in Puerto Rico, and the USVI and BVI;

●

the

risk

possible

failure

circumvention

the

Corporation’s

internal

controls

and

procedures

and

the

risk

that

the

Corporation’s risk management

policies may not be adequate;

●

the risk

that the

FDIC may

further increase

the deposit

insurance premium

and/or require

special assessments

to replenish

its

insurance fund, causing an additional increase in the Corporation’s

non-interest expenses;

●

need

recognize

impairments

the

Corporation’s

financial

instruments,

goodwill

and

other

intangible

assets

relating

business acquisitions;

●

the

risk

that

the

impact

the

occurrence

any

these

uncertainties

the

Corporation’s

capital

would

preclude

further

growth of FirstBank and preclude the Corporation’s

Board of Directors from declaring dividends;

●

uncertainty

as to

whether

FirstBank

will

able

continue

satisfy

its

regulators

regarding,

among

other

things,

its asset

quality,

liquidity

plans,

maintenance

capital

levels

and

compliance

with

applicable

laws,

regulations,

and

requirements; and

●

general competitive factors and industry consolidation.

The

Corporation

does

not

undertake,

and

specifically

disclaims

any

obligation,

update

any

“forward-looking

statements”

reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities laws.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

September 30, 2022

December 31, 2021

(In thousands, except for share information)

ASSETS

Cash and due from banks

552,933

2,540,376

Money market investments:

Time deposits with other financial institutions

300

Other short-term investments

1,757

2,382

Total money market investments

2,057

2,682

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

Securities pledged with creditors’ rights to repledge

205,635

321,180

Other available-for-sale debt securities

5,463,054

6,132,581

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

6,527,684

;

2021 - $

6,534,503

; ACL of $

664

as of September 30, 2022 and $

1,105

as of December 31, 2021)

5,668,689

6,453,761

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

of $

8,257

as of September 30, 2022 and $

8,571

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

429,530

; 2021 - $

167,147

)

437,605

169,562

Equity securities

24,727

32,169

Loans, net of ACL of $

257,859

(2021 - $

269,030

)

11,040,759

10,791,628

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

12,169

35,155

Total loans, net

11,052,928

10,826,783

Premises and equipment, net

143,429

146,417

Other real estate owned (“OREO”)

38,682

40,848

Accrued interest receivable on loans and investments

61,108

61,507

Deferred tax asset, net

166,100

208,482

Goodwill

38,611

Intangible assets

23,245

29,934

Other assets

231,920

234,143

Total assets

18,442,034

20,785,275

LIABILITIES

Non-interest-bearing deposits

6,235,782

7,027,513

Interest-bearing deposits

10,333,799

10,757,381

Total deposits

16,569,581

17,784,894

Securities sold under agreements to repurchase

200,000

300,000

FHLB advances

200,000

Other borrowings

183,762

Accounts payable and other liabilities

223,358

214,852

Total liabilities

17,176,701

18,683,508

STOCKHOLDERSʼ EQUITY

Common stock, $$

0.10

par value, authorized,

2,000,000,000

shares;

223,663,116

shares issued;

186,257,659

outstanding (2021 -

201,826,505

shares outstanding)

22,366

Additional paid-in capital (See Note 1)

969,370

972,547

Retained earnings, includes legal surplus reserve of $

137,591

1,593,284

1,427,295

Treasury stock at cost (See Note 1)

(456,994)

(236,442)

Accumulated other comprehensive loss, net of tax of $

9,786

(862,693)

(83,999)

Total stockholdersʼ equity

1,265,333

2,101,767

Total liabilities and stockholders' equity

18,442,034

20,785,275

The accompanying notes are an integral part of these financial

statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands, except per share information)

Interest and dividend income:

Loans

191,740

178,956

544,788

541,763

Investment securities

26,289

20,248

76,027

52,760

Money market investments and interest-bearing cash accounts

4,654

968

8,347

1,750

Total interest and dividend income

222,683

200,172

629,162

596,273

Interest expense:

Deposits

9,978

9,682

25,324

32,806

Securities sold under agreements to repurchase

1,993

2,571

6,147

7,392

Advances from FHLB

529

1,899

2,667

6,428

Other borrowings

2,273

1,277

5,304

3,856

Total interest expense

14,773

15,429

39,442

50,482

Net interest income

207,910

184,743

589,720

545,791

Provision for credit losses - expense (benefit):

Loans and finance leases

14,352

(8,734)

10,028

(49,479)

Unfunded loan commitments

2,071

(971)

2,705

(3,346)

Debt securities

(640)

(2,377)

(749)

(664)

Provision for credit losses - expense (benefit)

15,783

(12,082)

11,984

(53,489)

Net interest income after provision for credit losses

192,127

196,825

577,736

599,280

Non-interest income:

Service charges and fees on deposit accounts

9,820

8,690

28,649

25,782

Mortgage banking activities

3,400

6,098

12,688

19,775

Insurance commission income

2,624

2,318

10,845

9,774

Other non-interest income

13,849

12,840

41,310

35,455

Total non-interest income

29,693

29,946

93,492

90,786

Non-interest expenses:

Employees’ compensation and benefits

52,939

50,220

153,797

150,776

Occupancy and equipment

22,543

23,306

66,434

71,664

Business promotion

5,136

3,370

12,641

9,565

Professional service fees

12,549

13,554

35,179

48,019

Taxes, other than income taxes

5,349

5,238

15,056

17,013

FDIC deposit insurance

1,466

1,381

4,605

5,291

Net gain on OREO operations

(1,064)

(2,288)

(3,269)

(529)

Credit and debit card processing expenses

6,410

5,573

16,374

16,646

Communications

2,272

2,250

6,401

7,119

Merger and restructuring costs

2,268

24,582

Other non-interest expenses

7,589

9,164

22,956

27,363

Total non-interest expenses

115,189

114,036

330,174

377,509

Income before income taxes

106,631

112,735

341,054

312,557

Income tax expense

32,028

37,057

109,156

105,171

Net income

74,603

75,678

231,898

207,386

Net income attributable to common stockholders

74,603

75,009

231,898

205,379

Net income per common share:

Basic

0.40

0.36

1.20

0.97

Diluted

0.40

0.36

1.19

0.96

The accompanying notes are an integral part of these financial statements.

FIRST BANCORP.

CONSOLIDATED

STATEMENTS OF COMPREHENSIVE (LOSS)

INCOME

(Unaudited)

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Net income

74,603

75,678

231,898

207,386

Other comprehensive loss, net of tax:

Available-for-sale debt securities:

Net unrealized holding losses on debt securities

(270,937)

(18,740)

(778,694)

(89,173)

Other comprehensive loss for the period, net of tax

(270,937)

(18,740)

(778,694)

(89,173)

Total comprehensive (loss) income

(196,334)

56,938

(546,796)

118,213

The accompanying notes are an integral part of these financial statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine-Month Period Ended

September 30,

2022

2021

(In thousands)

Cash flows from operating activities:

Net income

231,898

207,386

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

Depreciation and amortization

16,810

18,936

Amortization of intangible assets

6,689

8,652

Provision for credit losses - expense (benefit)

11,984

(53,489)

Deferred income tax expense

42,382

85,969

Stock-based compensation

3,994

4,100

Unrealized gain on derivative instruments

(1,502)

(3,516)

Net gain on disposals or sales of premises and equipment and other

assets

(897)

(23)

Net gain on sales of loans

(4,827)

(11,743)

Net amortization of premiums, discounts, and deferred loan fees

and costs

(7,532)

(19,538)

Originations and purchases of loans held for sale

(184,544)

(386,102)

Sales and repayments of loans held for sale

204,182

413,521

Amortization of broker placement fees

177

Net amortization of premiums and discounts on investment securities

2,648

21,798

Decrease in accrued interest receivable

10,849

Decrease in accrued interest payable

(1,467)

(2,217)

Decrease in other assets

663

21,563

Increase (decrease) in other liabilities

14,097

(12,768)

Net cash provided by operating activities

334,752

303,555

Cash flows from investing activities:

Net (disbursements) repayments on loans held for investment

(308,386)

552,426

Proceeds from sales of loans held for investment

39,069

63,509

Proceeds from sales of repossessed assets

31,638

42,711

Purchases of available-for-sale debt securities

(512,327)

(3,290,077)

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

debt securities

515,602

1,149,394

Purchases of held-to-maturity debt securities

(289,784)

Proceeds from principal repayments and maturities of held-to-maturity

debt securities

23,320

12,678

Additions to premises and equipment

(15,442)

(10,783)

Proceeds from sales of premises and equipment and other assets

1,138

807

Net redemptions of other investment securities

6,988

122

Payment related to previous acquisition

(3,382)

Net cash used in investing activities

(508,184)

(1,482,595)

Cash flows from financing activities:

Net (decrease) increase in deposits

(1,221,614)

2,662,219

Repayments of long-term borrowings

(300,000)

(120,000)

Repurchase of outstanding common stock

(227,256)

(152,100)

Dividends paid on common stock

(65,766)

(44,732)

Dividends paid on preferred stock

(2,007)

Net cash (used in) provided by financing activities

(1,814,636)

2,343,380

Net (decrease) increase in cash and cash equivalents

(1,988,068)

1,164,340

Cash and cash equivalents at beginning of period

2,543,058

1,493,833

Cash and cash equivalents at end of period

554,990

2,658,173

Cash and cash equivalents include:

Cash and due from banks

552,933

2,655,491

Money market instruments

2,057

2,682

554,990

2,658,173

The accompanying notes are an integral part of these financial

statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY

(Unaudited)

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Preferred Stock

36,104

Common Stock:

Balance at beginning of period

22,366

22,363

22,366

22,303

Common stock issued under stock-based compensation plan

Balance at end of period

22,366

22,365

22,366

22,365

Additional Paid-In-Capital

(See Note 1)

Balance at beginning of period

968,217

968,144

972,547

965,385

Stock-based compensation expense

1,414

1,346

3,994

4,100

Common stock reissued/issued under stock-based compensation

plan

(302)

(2)

(7,304)

(62)

Restricted stock forfeited

133

158

Balance at end of period

969,370

969,581

969,370

969,581

Retained Earnings:

Balance at beginning of period

1,541,334

1,315,352

1,427,295

1,215,321

Net income

74,603

75,678

231,898

207,386

Dividends on common stock ($

0.12

per share and $

0.07

per share for the quarters ended

September 30, 2022 and 2021, respectively; $

0.34

per share and $

0.21

per share for the

nine-month periods ended September 30, 2022 and 2021, respectively)

(22,653)

(14,564)

(65,909)

(44,903)

Dividends on preferred stock

(669)

(2,007)

Balance at end of period

1,593,284

1,375,797

1,593,284

1,375,797

Treasury stock (at cost)

(See Note 1)

Balance at beginning of period

(382,245)

(122,030)

(236,442)

(19,389)

Common stock repurchases (See Note 14)

(75,010)

(50,041)

(227,723)

(152,618)

Common stock reissued under stock-based compensation

plan

302

7,304

Restricted stock forfeited

(41)

(93)

(133)

(157)

Balance at end of period

(456,994)

(172,164)

(456,994)

(172,164)

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

Balance at beginning of period

(591,756)

(14,978)

(83,999)

55,455

Other comprehensive loss, net of tax

(270,937)

(18,740)

(778,694)

(89,173)

Balance at end of period

(862,693)

(33,718)

(862,693)

(33,718)

Total stockholdersʼ equity

1,265,333

2,197,965

1,265,333

2,197,965

The accompanying notes are an integral part of these financial

statements.

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Basis of Presentation and Significant Accounting Policies

Note 2 –

Debt Securities

Note 3 –

Loans Held for Investment

Note 4

–

Allowance for Credit Losses for Loans and Finance Leases

Note 5 –

Other Real Estate Owned

Note 6

–

Goodwill and Other Intangibles

Note 7 –

Non-Consolidated Variable

Interest Entities (“VIE”) and Servicing Assets

Note 8 –

Deposits

Note 9 –

Securities Sold Under Agreements to Repurchase

Note 10 –

Advances from Federal Home Loan Bank

Note 11 –

Other Borrowings

Note 12 –

Earnings per Common Share

Note 13 –

Stock-Based Compensation

Note 14 –

Stockholders’ Equity

Note 15 –

Other Comprehensive Loss

Note 16 –

Employee Benefit Plans

Note 17 –

Income Taxes

Note 18

–

Fair Value

Note 19

–

Revenue from Contracts with Customers

Note 20 –

Supplemental Statement of Cash Flows Information

Note 21 –

Segment Information

Note 22 –

Regulatory Matters, Commitments, and Contingencies

Note 23 –

First BanCorp. (Holding Company Only) Financial Information

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS

(Unaudited)

NOTE 1 – BASIS

OF PRESENTATION AND

SIGNIFICANT

ACCOUNTING

POLICIES

The Consolidated Financial Statements (unaudited)

of First BanCorp. (the

“Corporation”)

have been prepared in

conformity with the

accounting

policies

stated

in the

Corporation’s

Audited

Consolidated

Financial

Statements

for the

fiscal

year ended

December

31, 2021

(the

“audited consolidated financial statements”) included

the

2021 Annual

Report on

Form 10-K,

except for

the

change in

accounting

method for accounting for its treasury

stock discussed below. Certain information

and note disclosures normally

included in the financial

statements prepared in accordance with generally accepted accounting principles in the

United States of

America (“GAAP”) have been

condensed or omitted from these statements

pursuant to the rules and regulations of the SEC and, accordingly, these financial statements

should be read in conjunction with the audited

consolidated

financial statements,

which are included in the 2021 Annual Report on Form

10-K. All

adjustments (consisting only

normal recurring adjustments) that

are, in

the

opinion of

management, necessary for

fair

presentation of the

statement of financial position, results of

operations and cash flows

for the

interim periods have been

reflected. All

significant

intercompany

accounts

and transactions

have been

eliminated

in consolidation.

Effective September 30, 2022, the Corporation

changed the

accounting

method for accounting

for its treasury

stock from a par

value to

a cost method.

We believe the

cost method

is preferable

as it more

accurately

reflects

in treasury

stock the

cost of stocks

repurchased

and it

enhances

our comparability

of financial

results with

other financial

institutions.

We reflected the

application

of this new

accounting

method

retrospectively

by adjusting

prior period

amounts

for treasury

stock and

additional

paid-in

capital.

The results of operations

for the quarter and nine-month period ended September

30, 2022 are not necessarily indicative

of the results

to be expected

for the

entire

year.

Adoption

of New Accounting

Requirements

The Corporation

was not

impacted

by the adoption

of the following

Accounting

Standards

Updates

(“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

Freestanding Equity-Classified

Written

Call

Options

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

an Entity’s Own

Equity (Subtopic

815-40):

Accounting

for Convertible

Instruments

and Contracts

in an Entity’s

Own Equity”

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 Financial

Accounting Standards Board

(“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 troubled debt

restructurings (“TDRs”)

recognition and measurement

guidance, enhances disclosure

requirements for loan

restructurings by creditors made

to borrowers experiencing

financial difficulty for which

the terms of the receivables

have been modified, 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 is evaluating the

impact that this ASU will have

on its financial statements and

disclosures. The Corporation

expects to adopt the amendments

of this update during the first

quarter of 2023 using a modified

retrospective transition method to

account for any 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

September 30, 2022, the

Corporation expects that the

adoption of this ASU will result

in a cumulative effect adjustment

to retained earnings, at the

adoption date, in a range of $

million to $

million, after-tax.

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.

For other recently

issued Accounting

Standards

not yet effective

or not yet adopted,

see Note 1 – Nature

of Business and

Summary of

Significant Accounting Policies included in

the 2021

Annual Report

on Form

10-K.

NOTE 2 – DEBT

SECURITIES

Available-for-Sale

Debt Securities

The

amortized

cost,

gross

unrealized

gains

and

losses

recorded

other

comprehensive

loss,

ACL,

estimated

fair

value,

and

weighted-average yield of available-for-sale

debt securities by contractual maturities as of September 30, 2022 were as follows:

September 30, 2022

Amortized cost

(1)

Gross Unrealized

ACL

Fair value

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

After 1 to 5 years

149,061

10,803

138,258

0.67

U.S. government-sponsored agencies' obligations:

Due within one year

73,817

2,629

71,188

0.28

After 1 to 5 years

2,306,065

224,427

2,081,660

0.81

After 5 to 10 years

200,606

30,433

170,194

1.01

After 10 years

12,919

12,977

3.46

Puerto Rico government obligations:

After 10 years

(2)

3,365

798

374

2,193

United States and Puerto Rico government obligations

2,745,833

101

269,090

374

2,476,470

0.82

Mortgage-backed securities ("MBS"):

Freddie Mac (“FHLMC”) certificates:

After 1 to 5 years

4,655

184

4,471

2.34

After 5 to 10 years

200,216

19,255

180,961

1.48

After 10 years

1,133,339

203,768

929,571

1.37

1,338,210

223,207

1,115,003

1.39

Ginnie Mae (“GNMA”) certificates:

Due within one year

1.84

After 1 to 5 years

17,672

731

16,942

2.02

After 5 to 10 years

43,643

4,100

39,543

1.21

After 10 years

245,557

30,668

214,914

2.28

306,878

35,499

271,405

2.11

Fannie Mae (“FNMA”) certificates:

Due within one year

14,565

110

14,675

3.01

After 1 to 5 years

10,514

531

9,983

1.76

After 5 to 10 years

406,597

40,958

365,639

1.64

After 10 years

1,230,573

161

204,452

1,026,282

1.37

1,662,249

271

245,941

1,416,579

1.45

Collateralized mortgage obligations issued or guaranteed

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

After 1 to 5 years

32,101

4,225

27,876

2.09

After 10 years

433,302

78,616

354,686

1.36

465,403

82,841

382,562

1.41

Private label:

After 10 years

8,611

2,151

290

6,170

5.93

Total MBS

3,781,351

297

589,639

290

3,191,719

1.49

Other

Due within one year

500

0.84

Total available-for-sale debt securities

6,527,684

398

858,729

664

5,668,689

1.21

(1)

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

10.9

million as of September 30, 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.

(2)

Consists of a residential

pass-through MBS issued by the

Puerto Rico Housing Finance Authority

(“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.

The

amortized

cost,

gross

unrealized

gains

and

losses

recorded

other

comprehensive

loss,

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 Unrealized

ACL

Fair value

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

After 1 to 5 years

149,660

1,233

148,486

0.68

U.S. government-sponsored agencies' obligations:

After 1 to 5 years

1,877,181

240

29,555

1,847,866

0.60

After 5 to 10 years

403,785

175

10,856

393,104

0.90

After 10 years

15,788

224

16,012

0.63

Puerto Rico government obligations:

After 10 years

(2)

3,574

416

308

2,850

United States and Puerto Rico government obligations

2,449,988

698

42,060

308

2,408,318

0.67

MBS:

FHLMC certificates:

After 1 to 5 years

2,811

119

2,930

2.65

After 5 to 10 years

193,234

2,419

1,122

194,531

1.29

After 10 years

1,240,964

3,748

23,503

1,221,209

1.18

1,437,009

6,286

24,625

1,418,670

1.20

GNMA certificates:

Due within one year

1.32

After 1 to 5 years

16,714

572

17,286

2.90

After 5 to 10 years

27,271

139

27,212

0.51

After 10 years

338,927

7,091

2,174

343,844

1.45

382,914

7,743

2,313

388,344

1.45

FNMA certificates:

Due within one year

4,975

4,996

2.03

After 1 to 5 years

21,337

424

21,761

2.87

After 5 to 10 years

298,771

4,387

1,917

301,241

1.41

After 10 years

1,389,381

8,953

21,747

1,376,587

1.21

1,714,464

13,785

23,664

1,704,585

1.27

CMOs

After 1 to 5 years

24,007

778

23,230

1.31

After 5 to 10 years

14,316

14,413

0.76

After 10 years

500,811

290

13,134

487,967

1.23

539,134

388

13,912

525,610

1.22

Private label:

After 10 years

9,994

1,963

797

7,234

2.21

Total MBS

4,083,515

28,202

66,477

797

4,044,443

1.26

Other

Due within one year

500

0.72

After 1 to 5 years

500

0.84

1,000

0.78

Total available-for-sale debt securities

6,534,503

28,900

108,537

1,105

6,453,761

1.03

(1)

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

10.1

million as of December 31, 2021, 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.

(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 this delinquency status of the underlying second mortgage loans collateral.

Maturities

available-for-sale

debt

securities

are

based

the

period

final

contractual

maturity.

Expected

maturities

might

differ

from

contractual

maturities

because

they

may

subject

prepayments

and/or

call

options.

The

weighted-average

yield

available-for-sale

debt

securities

based

amortized

cost

and,

therefore,

does

not

give

effect

changes

fair

value.

The

net

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

of other comprehensive (loss) income.

The

following

tables

show

the

fair

value

and

gross

unrealized

losses

the

Corporation’s

available-for-sale

debt

securities,

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

of September 30, 2022 and December 31, 2021. The tables also include debt

securities for which an ACL was recorded.

As of September 30, 2022

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

U.S. Treasury and U.S. government agenciesʼ

obligations

379,287

25,696

2,072,728

242,596

2,452,015

268,292

Puerto Rico-government obligations

2,193

798

(1)

2,193

798

MBS:

FHLMC

342,188

61,298

772,815

161,909

1,115,003

223,207

GNMA

177,448

15,418

91,617

20,081

269,065

35,499

FNMA

484,050

65,795

907,828

180,146

1,391,878

245,941

CMOs

71,518

9,260

311,044

73,581

382,562

82,841

Private label

6,170

2,151

(1)

6,170

2,151

1,454,491

177,467

4,164,395

681,262

5,618,886

858,729

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of September 30, 2022, PRHFA

bond and private label MBS had an ACL of $

0.4

million and

0.3

million, respectively.

As of December 31, 2021

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

U.S. Treasury and U.S. government agenciesʼ

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.

Assessment for Credit Losses

Debt

securities

issued

U.S.

government

agencies,

U.S.

government-sponsored

entities

(“GSEs”),

and

the

U.S.

Treasury,

including

notes

and

MBS, accounted

for

substantially

all of

the

total

available-for-sale

portfolio

as of

September

30, 2022,

and

the

Corporation

expects

credit

losses

these

securities,

given

the

explicit

and

implicit

guarantees

provided

the

U.S.

federal

government.

Because

the

decline

fair

value

attributable

changes

interest

rates,

and

not

credit

quality,

and

because

the

Corporation

does

not

have

the

intent

sell

these

U.S.

government

and

agencies

debt

securities

and

likely

that

will

not

required to sell the securities before

their anticipated recovery,

the Corporation does not consider impairments

on these securities to be

credit related as

of September 30,

2022. The Corporation’s

credit loss assessment

was concentrated mainly

on private label MBS,

and

on Puerto Rico government debt securities, for which credit losses are evaluated on

a quarterly basis.

The

Corporation’s

available-for-sale

MBS

portfolio

included

private

label

MBS

with

fair

value

6.2

million,

which

had

unrealized losses

of approximately

2.4

million as

of September

30, 2022,

of which

0.3

million is

due to

credit deterioration

and is

part of the ACL.

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

coupon on the underlying collateral.

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

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

of September 30, 2022,

the Corporation did not have

the intent to sell these securities

and determined that

it is likely that it will not

required to sell the securities before

anticipated recovery.

The Corporation determined the ACL

for private label MBS based on

a risk-

adjusted

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

the

instruments.

The

Corporation

utilized

probability of

default (“PDs”)

and loss

given default

(“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 approac

h, 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

September 30, 2022

December 31, 2021

Weighted

Range

Weighted

Range

Average

Minimum

Maximum

Average

Minimum

Maximum

Discount rate

16.4%

12.9%

Prepayment rate

12.6%

1.9%

17.4%

15.2%

7.6%

24.9%

Projected Cumulative Loss Rate

6.9%

0.2%

17.3%

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 September

30, 2022,

the ACL

for these

private label

MBS was

0.3

million, compared

to $

0.8

million as

of December

31, 2021.

September

30,

2022,

the

Corporation’s

available-for-sale

debt

securities

portfolio

also

included

residential

pass-through

MBS issued by the PRHFA,

collateralized by certain second mortgages, with

a fair value of $

2.2

million, which had an unrealized loss

of approximately

1.2

million. Approximately

0.4

million of

the unrealized

losses was

due to

credit deterioration

and is

part of

the

ACL. The underlying

second mortgage loans

were originated under

a program launched by

the Puerto Rico

government in 2010. This

residential pass-through MBS

was structured as

a zero-coupon bond

for the first ten

years (up to July 2019).

The underlying source

repayment on this

residential pass-through

MBS are second mortgage

loans in Puerto Rico.

PRHFA, not

the Puerto Rico

government,

provides

guarantee

the

event

default

and

subsequent

foreclosure

the

properties

underlying

the

second

mortgage

loans.

During

2021,

the Corporation

placed

this instrument

nonaccrual

status based

the

delinquency

status of

the

underlying

second

mortgage loans collateral.

The Corporation determined

the ACL on this

instrument based on

a discounted cash flow

methodology that

considered the

structure and

terms of

the debt security.

The Corporation

utilized PDs and

LGDs that

considered, among

other things,

historical payment

performance, loan-to-value

attributes and

relevant current

and forward-looking

macroeconomic variables,

such 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

the

Treasury

yield

curve

plus

spread

the

reporting

date

and

compared

the

amortized

cost.

the

event

that

the

second

mortgage

loans

default

and

the

collateral

insufficient

satisfy

the

outstanding

balance

this

residential

pass-through

MBS,

PRHFA’s

ability

honor

its

insurance

will

depend

on,

among

other

factors,

the financial

condition of

PRHFA

at the

time

such obligation

becomes due

and payable.

Further deterioration

of the

Puerto

Rico

economy

fiscal

health

the

PRHFA

could

impact

the

value

these

securities,

resulting

additional

losses

the

Corporation. As

of September

30, 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 quarters

and nine

-month

periods

ended September

30,

2022 and 2021 of the ACL on available-for-sale debt

securities:

Quarter Ended September 30, 2022

Private label MBS

Puerto Rico

Government Obligations

Total

(In thousands)

Beginning Balance

290

386

676

Provision for credit losses - (benefit)

(12)

ACL on available-for-sale debt securities

290

374

664

Quarter Ended September 30, 2021

Private label MBS

Puerto Rico Government

Obligations

Total

(In thousands)

Beginning Balance

858

308

1,166

Provision for credit losses - (benefit)

(9)

ACL on available-for-sale debt securities

849

308

1,157

Nine-Month Period Ended September 30, 2022

Private label MBS

Puerto Rico

Government Obligations

Total

(In thousands)

Beginning Balance

797

308

1,105

Provision for credit losses - (benefit) expense

(501)

(435)

Net charge-offs

(6)

ACL on available-for-sale debt securities

290

374

664

Nine-Month Period Ended September 30, 2021

Private label MBS

Puerto Rico

Government Obligations

Total

(In thousands)

Beginning Balance

1,002

308

1,310

Provision for credit losses - (benefit)

(136)

Net charge-offs

(17)

ACL on available-for-sale debt securities

849

308

1,157

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 September 30, 2022

and December 31, 2021 were as follows:

September 30, 2022

Amortized cost

(1)

Gross Unrecognized

Fair value

ACL

Weighted-

average yield%

Gains

Losses

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

1,200

1,176

4.49

After 1 to 5 years

42,426

694

2,457

40,663

704

5.51

After 5 to 10 years

55,737

2,451

1,599

56,589

3,295

4.82

After 10 years

66,023

3,473

62,550

4,254

5.63

Total Puerto Rico municipal bonds

165,386

3,145

7,553

160,978

8,257

5.32

MBS:

FHLMC certificates:

After 5 to 10 years

22,850

1,071

21,779

3.03

After 10 years

19,662

1,060

18,602

4.14

42,512

2,131

40,381

3.55

GNMA certificates:

After 10 years

19,978

1,157

18,821

3.31

FNMA certificates:

After 1 to 5 years

9,664

390

9,274

3.48

After 10 years

73,764

3,883

69,881

4.12

83,428

4,273

79,155

4.04

CMOs

After 10 years

134,558

4,363

130,195

3.25

Total MBS

280,476

11,924

268,552

3.53

Total held-to-maturity debt securities

445,862

3,145

19,477

429,530

8,257

4.20

(1)

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

2.8

million as of September 30, 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

ACL

Weighted-

average yield%

Gains

Losses

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

2,995

3,000

5.39

After 1 to 5 years

14,785

526

156

15,155

347

2.35

After 5 to 10 years

90,584

1,555

3,139

89,000

3,258

4.25

After 10 years

69,769

9,777

59,992

4,896

4.06

Total held-to-maturity debt securities

178,133

2,086

13,072

167,147

8,571

4.04

(1)

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

3.4

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

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

During the nine-month period

ended September 30, 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 unre

cognized losses, aggregated

category

and

length

time

that

individual

securities

had

been

continuous

unrecognized

loss

position,

September

30,

2022 and December 31, 2021, including debt securities for which an ACL was recorded:

As of September 30, 2022

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico municipal bonds

121,440

7,553

121,440

7,553

MBS:

FHLMC certificates

40,381

2,131

40,381

2,131

GNMA certificates

18,821

1,157

18,821

1,157

FNMA certificates

79,155

4,273

79,155

4,273

CMOs

130,195

4,363

130,195

4,363

Total held-to-maturity

debt securities

268,552

11,924

121,440

7,553

389,992

19,477

As of December 31, 2021

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico municipal bonds

140,732

13,072

140,732

13,072

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

GSEs and

Puerto

Rico municipal

bonds.

As of

September 30,

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

Note

–

Nature

Business

and

Summary

Significant

Accounting

Policies

the

audited

consolidated

financial

statements included in the 2021

Annual Report on Form 10-K.

The

Corporation

performs

periodic

credit

quality

reviews

these

issuers.

All

Puerto

Rico

municipal

bonds

were

current

scheduled

contractual

payments

September

30,

2022.

The

Puerto

Rico

municipal

bonds

had

ACL

8.3

million

September 30,

2022, a

0.3

million decrease

from $

8.6

million as

of December

31, 2021,

mostly related

to a

reduction in

qualitative

reserves driven by updated financial information received during the

third quarter of 2022.

The following tables

present the activity

in the ACL for

held-to-maturity debt

securities by major

security type for

the quarters and

nine-month periods ended September 30, 2022 and 2021:

Puerto Rico Municipal Bonds

Quarter Ended September 30,

2022

Quarter Ended September 30,

2021

(In thousands)

Beginning Balance

8,885

10,685

Provision for credit losses - (benefit)

(628)

(2,368)

ACL on held-to-maturity debt securities

8,257

8,317

Puerto Rico Municipal Bonds

Nine-Month Period Ended

September 30, 2022

September 30, 2021

(In thousands)

Beginning Balance

8,571

8,845

Provision for credit losses - (benefit)

(314)

(528)

ACL on held-to-maturity debt securities

8,257

8,317

During

the

second

quarter

2019,

the

oversight

board

established

the

Puerto

Rico

Oversight,

Management,

and

Economic

Stability

Act

(“PROMESA”)

announced

the

designation

Puerto

Rico’s

municipalities

covered

instrumentalities

under

PROMESA.

Municipalities

may

affected

the

negative

economic

and

other

effects

resulting

from

expense,

revenue

cash

management

measures

taken

the

Puerto

Rico

government

address

its

fiscal

situation,

measures

included

fiscal

plans

other

government

entities,

and,

recently,

the

effect

the

COVID-19

pandemic

the

Puerto

Rico

and

global

economy.

Given

the inherent

uncertainties about

the fiscal

situation

of the

Puerto

Rico central

government,

the COVID-19

pandemic, and

the

measures

taken,

other

government

entities

response

the

COVID-19

pandemic

municipalities,

the

Corporation cannot be certain whether future charges

to the ACL on these securities will be required.

From

time

time,

the

Corporation

has

securities

held

maturity

with

original

maturity

three

months

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

money

market

investments

the

consolidated

statements

financial

condition.

September

30,

2022

and

December

31,

2021,

the

Corporation

had

no outstanding

securities

held

maturity

that

were classified as cash and cash equivalents.

Credit Quality Indicators:

The held-to-maturity debt securities

portfolio consisted of GSE’s

MBS and financing arrangements

with Puerto Rico municipalities

issued in

bond form.

As previously

mentioned,

the Corporation

expects

no credit

losses on

GSEs MBS.

The Puerto

Rico municipal

bonds

are

accounted

for

securities,

but

are

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

Accordingly, the

Corporation monitors the credit quality of these municipal bonds through the

use of internal credit-risk ratings, which

are generally updated

on a quarterly basis.

The Corporation considers

a municipal bond

as a criticized asset

if its risk rating

is Special

Mention,

Substandard,

Doubtful

Loss.

Puerto

Rico

municipal

bonds

that

not

meet

the

criteria

for

classification

criticized

assets

are

considered

pass-rated

securities.

For

the

definitions

the

internal

credit-risk

ratings,

refer

Note

–

Investment

Securities included in the 2021 Annual Report on Form 10-K.

The Corporation

periodically reviews

its Puerto

Rico municipal

bonds to

evaluate if

they are

properly classified,

and to

determine

impairment, if

any.

The frequency

of these

reviews will

depend on

the amount

of the

aggregate outstanding

debt, and

the risk

rating

classification of the obligor.

The

Corporation

has

Loan

Review

Group

that

reports

directly

the

Corporation’s

Risk

Management

Committee

and

administratively

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities.

The objective

these

loan

reviews

is to

assess

accuracy

of the

Bank’s

determination

and

maintenance

loan

risk

rating

and

its

adherence

lending

policies,

practices

and

procedures.

The

monitoring

performed

this

group

contributes

the

assessment

compliance

with

credit

policies

and

underwriting

standards,

the

determination

the

current

level

credit

risk,

the

evaluation of

the effectiveness

of the

credit management

process and

the identification

of any

deficiency that

may arise in

the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

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

process reviews to the Risk Management Committee.

As of September 30, 2022 and December 31, 2021,

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

were classified as

Pass.

held-to-maturity debt

securities were

on nonaccrual

status, 90 days

past due

and still accruing,

or past

due as

of September

30,

2022 and

December 31,

2021. A security

is considered

to be past

due once

it is

days contractually

past due under

the terms of

the

agreement.

NOTE 3 – LOANS HELD FOR INVESTMENT

The

following table

provides information

about the

loan

portfolio held

for

investment by

portfolio segment

and

disaggregated by

geographic location

as of the indicated

dates:

As of September 30, 2022

As of December 31, 2021

(In thousands)

Puerto Rico and Virgin Island region:

Residential mortgage loans, mainly secured by first mortgages

2,415,232

2,549,573

Construction loans

27,716

43,133

Commercial mortgage loans

1,754,447

1,702,231

Commercial and Industrial ("C&I") loans

1,842,166

1,946,597

Consumer loans

3,208,437

2,872,384

Loans held for investment

9,247,998

9,113,918

Florida region:

Residential mortgage loans, mainly secured by first mortgages

415,742

429,322

Construction loans

96,278

95,866

Commercial mortgage loans

511,167

465,238

C&I loans

1,016,120

940,654

Consumer loans

11,313

15,660

Loans held for investment

2,050,620

1,946,740

Total:

Residential mortgage loans, mainly secured by first mortgages

2,830,974

2,978,895

Construction loans

123,994

138,999

Commercial mortgage loans

2,265,614

2,167,469

C&I loans

(1)

2,858,286

2,887,251

Consumer loans

3,219,750

2,888,044

Loans held for investment

(2)

11,298,618

11,060,658

(1)

As of September 30, 2022 and December 31, 2021, includes

870.3

million and $

952.1

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

but were not dependent upon the real estate for repayment.

(2)

Includes accretable fair value net purchase discounts of $

30.7

million and $

35.3

million as of September 30, 2022 and December 31, 2021,

respectively.

The

Corporation’s

aging

the

loan

portfolio

held

for

investment

portfolio

classes

and

nonaccrual

loans

with

ACL

September 30, 2022 and December 31, 2021 are as follows:

As of September 30, 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)

67,095

2,824

49,044

118,963

Conventional residential mortgage loans

(2) (7)

2,621,897

29,012

18,066

43,036

2,712,011

3,412

Commercial loans:

Construction loans

121,757

2,237

123,994

976

Commercial mortgage loans

(2) (7)

2,238,580

1,415

417

1,461

23,741

2,265,614

15,699

C&I loans

2,827,076

4,463

1,943

9,089

15,715

2,858,286

10,854

Consumer loans:

Auto loans

1,695,594

41,935

8,068

8,703

1,754,300

2,054

Finance leases

659,097

7,033

1,554

1,430

669,114

216

Personal loans

341,220

3,852

1,884

1,146

348,102

Credit cards

293,555

4,212

2,320

3,985

304,072

Other consumer loans

139,621

1,779

1,254

1,508

144,162

Total loans held for investment

11,005,492

64,689

49,276

81,645

97,516

11,298,618

33,211

(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 $

31.0

million of residential mortgage loans guaranteed by the FHA that were

over 15 months delinquent.

(2)

Includes purchased credit deteriorated ("PCD") loans previously accounted

for under Accounting Standard Codification ("ASC") Subtopic

310-30, "Loans and Debt Securities Acquired

with Deteriorated Credit Quality" ("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 $

12.8

million as of September 30, 2022 ($

11.8

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 $

8.0

million as of September 30, 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 $

6.5

million as of September 30, 2022, primarily nonaccrual residential

mortgage loans.

(5)

Nonaccrual loans exclude $

340.1

million of TDR loans that were in compliance with modified terms

and in accrual status as of September 30, 2022.

(6)

Includes $

0.6

million of nonaccrual C&I loans with no ACL in the Florida region

as of September 30, 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 September 30, 2022 amounted to $

6.0

million, $

71.7

million, and $

1.9

million, respectively.

As of December 31, 2021

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

Nonaccrual

(4) (5)

Total loans

held for

investment

Nonaccrual

Loans with

no ACL

(6)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(1) (3) (7)

57,522

2,355

65,515

125,392

Conventional residential mortgage loans

(2) (7)

2,738,111

31,832

28,433

55,127

2,853,503

3,689

Commercial loans:

Construction loans

136,317

2,664

138,999

1,000

Commercial mortgage loans

(2) (7)

2,129,375

2,402

436

9,919

25,337

2,167,469

8,289

C&I loans

2,858,397

2,047

1,845

7,827

17,135

2,887,251

11,393

Consumer loans:

Auto loans

1,533,445

26,462

4,949

6,684

1,571,540

3,146

Finance leases

568,606

4,820

713

866

575,005

196

Personal loans

310,390

3,299

1,285

1,208

316,182

Credit cards

282,179

3,158

1,904

2,985

290,226

Other consumer loans

130,588

1,996

811

1,696

135,091

Total loans held for investment

10,744,930

44,202

46,130

114,679

110,717

11,060,658

27,733

(1)

It is the Corporation's policy to report delinquent FHA/VA

government-guaranteed residential mortgage loans

as past-due loans 90 days and still accruing as opposed

to nonaccrual loans.

The Corporation continues accruing interest on these loans

until they have passed the 15 months delinquency mark, taking into consideration

the FHA interest curtailment process. These

balances include $

46.6

million of residential mortgage loans guaranteed by the FHA that

were over 15 months delinquent.

(2)

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

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 $

0.5

million and $

1.2

million for the

quarter and nine-month

period ended September

30, 2022, respectively

0.4

million and

1.7

million for

the quarter

and nine-month

period ended

September 30,

2021, respectively).

For the

quarter and

nine-month

period

ended September

30, 2022, the

cash interest recognized

on nonaccrual

loans amounted

to $

0.3

million and

1.0

million, respectively,

compared with $

0.4

million and $

1.7

million for the quarter and nine-month period ended September 30, 2021, respectively.

As of

September 30,

2022, the

recorded investment

on residential

mortgage loans

collateralized by

residential real

estate property

that

were

the

process

foreclosure

amounted

76.1

million,

including

32.6

million

FHA/VA

government-guaranteed

mortgage

loans,

and

10.0

million

PCD

loans

acquired

prior

the

adoption,

January

2020,

CECL.

The

Corporation

commences the foreclosure

process on residential

real estate loans when

a borrower becomes

120

days delinquent, in accordance

with

the

requirements

the

Consumer

Financial

Protection

Bureau

(“CFPB”).

Foreclosure

procedures

and

timelines

vary

depending

whether

the

property

located

judicial

non-judicial

state.

Occasionally,

foreclosures

may

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,

commercial

and industrial,

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

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities, as discussed in Note 5 – Investment Securities, in the 2021

Annual Report on Form 10-K.

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

quality based on its interest accrual status.

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and by

origination

year

based

the

internal

credit-risk

category

September

30,

2022

and

the

amortized

cost

commercial

and

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

category as of December 31, 2021 was as follows:

As of September 30, 2022

Puerto Rico and Virgin Islands region

Term Loans

As of December 31, 2021

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

8,853

11,978

3,958

24,789

38,066

Criticized:

Special Mention

765

Substandard

2,927

4,302

Doubtful

Loss

Total construction loans

8,853

11,978

6,885

27,716

43,133

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

241,870

150,940

365,144

222,211

179,280

308,966

232

1,468,643

1,395,569

Criticized:

Special Mention

1,218

3,611

83,664

30,832

130,324

249,649

259,263

Substandard

138

2,927

761

32,329

36,155

47,399

Doubtful

Loss

Total commercial mortgage loans

243,226

150,940

368,755

308,802

210,873

471,619

232

1,754,447

1,702,231

COMMERCIAL AND INDUSTRIAL

Risk Ratings:

Pass

116,025

200,628

189,639

324,443

126,946

258,087

541,962

1,757,730

1,852,552

Criticized:

Special Mention

145

236

2,652

24,830

27,863

32,650

Substandard

4,093

1,360

14,113

1,958

33,310

1,674

56,573

61,395

Doubtful

Loss

Total commercial and industrial loans

116,235

204,721

190,999

338,556

129,140

294,049

568,466

1,842,166

1,946,597

(1) Excludes accrued interest receivable.

As of September 30, 2022

Term Loans

As of December 31, 2021

Florida region

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

46,944

45,284

4,036

96,278

95,866

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

46,944

45,284

4,036

96,278

95,866

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

157,109

70,922

42,997

55,184

72,273

71,565

19,232

489,282

404,304

Criticized:

Special Mention

7,024

13,384

20,408

60,618

Substandard

1,168

309

1,477

316

Doubtful

Loss

Total commercial mortgage loans

157,109

70,922

51,189

68,568

72,273

71,874

19,232

511,167

465,238

COMMERCIAL AND INDUSTRIAL

Risk Ratings:

Pass

255,508

169,329

82,074

224,772

67,508

45,828

96,639

941,658

826,823

Criticized:

Special Mention

5,972

12,185

18,157

49,946

Substandard

24,193

27,456

4,356

300

56,305

63,885

Doubtful

Loss

Total commercial and industrial loans

255,508

169,329

106,267

258,200

67,508

62,369

96,939

1,016,120

940,654

(1) Excludes accrued interest receivable.

As of September 30, 2022

Total

Term Loans

As of December 31, 2021

Amortized Cost Basis by Origination Year

(1)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

55,797

57,262

3,958

4,036

121,067

133,932

Criticized:

Special Mention

765

Substandard

2,927

4,302

Doubtful

Loss

Total construction loans

55,797

57,262

6,885

4,036

123,994

138,999

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

398,979

221,862

408,141

277,395

251,553

380,531

19,464

1,957,925

1,799,873

Criticized:

Special Mention

1,218

10,635

97,048

30,832

130,324

270,057

319,881

Substandard

138

1,168

2,927

761

32,638

37,632

47,715

Doubtful

Loss

Total commercial mortgage loans

400,335

221,862

419,944

377,370

283,146

543,493

19,464

2,265,614

2,167,469

COMMERCIAL AND INDUSTRIAL

Risk Ratings:

Pass

371,533

369,957

271,713

549,215

194,454

303,915

638,601

2,699,388

2,679,375

Criticized:

Special Mention

145

5,972

236

14,837

24,830

46,020

82,596

Substandard

4,093

25,553

41,569

1,958

37,666

1,974

112,878

125,280

Doubtful

Loss

Total commercial and industrial loans

371,743

374,050

297,266

596,756

196,648

356,418

665,405

2,858,286

2,887,251

(1) Excludes accrued interest receivable.

The

following

tables

present

the

amortized

cost

residential

mortgage

loans

origination

year

based

accrual

status

September 30, 2022, and the amortized cost of residential mortgage loans by

accrual status as of December 31, 2021:

As of September 30, 2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Puerto Rico and Virgin Islands Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

705

323

828

1,291

3,871

111,199

118,217

124,652

Non-Performing

Total FHA/VA

government-guaranteed loans

705

323

828

1,291

3,871

111,199

118,217

124,652

Conventional residential mortgage loans:

Accrual Status:

Performing

113,963

77,357

32,059

49,797

73,631

1,912,690

2,259,497

2,376,946

Non-Performing

113

279

37,091

37,518

47,975

Total conventional residential mortgage loans

113,963

77,392

32,059

49,910

73,910

1,949,781

2,297,015

2,424,921

Total:

Accrual Status:

Performing

114,668

77,680

32,887

51,088

77,502

2,023,889

2,377,714

2,501,598

Non-Performing

113

279

37,091

37,518

47,975

Total residential mortgage loans in Puerto Rico

and Virgin Islands Region

114,668

77,715

32,887

51,201

77,781

2,060,980

2,415,232

2,549,573

(1)

Excludes accrued interest receivable.

As of September 30, 2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

746

740

Non-Performing

Total FHA/VA

government-guaranteed loans

746

740

Conventional residential mortgage loans:

Accrual Status:

Performing

58,261

50,307

32,160

33,150

38,744

196,856

409,478

421,430

Non-Performing

274

5,244

5,518

7,152

Total conventional residential mortgage loans

58,261

50,307

32,160

33,424

38,744

202,100

414,996

428,582

Total:

Accrual Status:

Performing

58,261

50,307

32,160

33,150

38,744

197,602

410,224

422,170

Non-Performing

274

5,244

5,518

7,152

Total residential mortgage loans in Florida region

58,261

50,307

32,160

33,424

38,744

202,846

415,742

429,322

(1)

Excludes accrued interest receivable.

As of September 30, 2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

705

323

828

1,291

3,871

111,945

118,963

125,392

Non-Performing

Total FHA/VA

government-guaranteed loans

705

323

828

1,291

3,871

111,945

118,963

125,392

Conventional residential mortgage loans:

Accrual Status:

Performing

172,224

127,664

64,219

82,947

112,375

2,109,546

2,668,975

2,798,376

Non-Performing

387

279

42,335

43,036

55,127

Total conventional residential mortgage loans

172,224

127,699

64,219

83,334

112,654

2,151,881

2,712,011

2,853,503

Total:

Accrual Status:

Performing

172,929

127,987

65,047

84,238

116,246

2,221,491

2,787,938

2,923,768

Non-Performing

387

279

42,335

43,036

55,127

Total residential mortgage loans

172,929

128,022

65,047

84,625

116,525

2,263,826

2,830,974

2,978,895

(1)

Excludes accrued interest receivable.

The following tables

present the amortized

cost of consumer

loans by origination

year based on

accrual status as

of September 30,

2022 and the amortized cost of consumer loans by accrual status as of December 31,

2021:

As of September 30, 2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Puerto Rico and Virgin Islands Region:

Auto loans:

Accrual Status:

Performing

530,902

544,149

275,432

227,501

112,215

50,723

1,740,922

1,556,097

Non-Performing

552

1,656

1,353

2,408

1,414

1,308

8,691

6,684

Total auto loans

531,454

545,805

276,785

229,909

113,629

52,031

1,749,613

1,562,781

Finance leases:

Accrual Status:

Performing

212,139

200,819

94,148

88,244

54,392

17,942

667,684

574,139

Non-Performing

298

321

248

204

320

1,430

866

Total finance leases

212,178

201,117

94,469

88,492

54,596

18,262

669,114

575,005

Personal loans:

Accrual Status:

Performing

141,759

63,308

33,960

62,696

27,401

17,474

346,598

314,867

Non-Performing

281

192

381

124

1,146

1,208

Total personal loans

141,846

63,589

34,152

63,077

27,482

17,598

347,744

316,075

Credit cards:

Accrual Status:

Performing

304,072

290,226

Non-Performing

Total credit cards

304,072

290,226

Other consumer loans:

Accrual Status:

Performing

65,494

27,107

10,670

14,597

4,983

4,672

8,985

136,508

126,734

Non-Performing

218

364

184

335

136

1,386

1,563

Total other consumer loans

65,712

27,471

10,758

14,781

5,044

5,007

9,121

137,894

128,297

Total:

Performing

950,294

835,383

414,210

393,038

198,991

90,811

313,057

3,195,784

2,862,063

Non-Performing

896

2,599

1,954

3,221

1,760

2,087

136

12,653

10,321

Total consumer loans in Puerto Rico and Virgin

Islands region

951,190

837,982

416,164

396,259

200,751

92,898

313,193

3,208,437

2,872,384

(1)

Excludes accrued interest receivable.

As of September 30, 2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Florida Region:

Auto loans:

Accrual Status:

Performing

377

2,830

1,468

4,675

8,759

Non-Performing

Total auto loans

377

2,830

1,480

4,687

8,759

Finance leases:

Accrual Status:

Performing

Non-Performing

Total finance leases

Personal loans:

Accrual Status:

Performing

274

358

107

Non-Performing

Total personal loans

274

358

107

Credit cards:

Accrual Status:

Performing

Non-Performing

Total credit cards

Other consumer loans:

Accrual Status:

Performing

233

469

2,929

2,426

6,146

6,661

Non-Performing

100

122

133

Total other consumer loans

233

469

2,951

2,526

6,268

6,794

Total:

Performing

324

304

482

377

2,869

4,397

2,426

11,179

15,527

Non-Performing

100

134

133

Total consumer loans in Florida region

324

304

482

377

2,869

4,431

2,526

11,313

15,660

(1)

Excludes accrued interest receivable.

As of September 30, 2022

As of

December 31,

2021

Term Loans

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2022

2021

2020

2019

2018

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Total:

Auto loans:

Accrual Status:

Performing

530,902

544,149

275,432

227,878

115,045

52,191

1,745,597

1,564,856

Non-Performing

552

1,656

1,353

2,408

1,414

1,320

8,703

6,684

Total auto loans

531,454

545,805

276,785

230,286

116,459

53,511

1,754,300

1,571,540

Finance leases:

Accrual Status:

Performing

212,139

200,819

94,148

88,244

54,392

17,942

667,684

574,139

Non-Performing

298

321

248

204

320

1,430

866

Total finance leases

212,178

201,117

94,469

88,492

54,596

18,262

669,114

575,005

Personal loans:

Accrual Status:

Performing

142,033

63,379

33,973

62,696

27,401

17,474

346,956

314,974

Non-Performing

281

192

381

124

1,146

1,208

Total personal loans

142,120

63,660

34,165

63,077

27,482

17,598

348,102

316,182

Credit cards:

Accrual Status:

Performing

304,072

290,226

Non-Performing

Total credit cards

304,072

290,226

Other consumer loans:

Accrual Status:

Performing

65,544

27,340

11,139

14,597

5,022

7,601

11,411

142,654

133,395

Non-Performing

218

364

184

357

236

1,508

1,696

Total other consumer loans

65,762

27,704

11,227

14,781

5,083

7,958

11,647

144,162

135,091

Total:

Performing

950,618

835,687

414,692

393,415

201,860

95,208

315,483

3,206,963

2,877,590

Non-Performing

896

2,599

1,954

3,221

1,760

2,121

236

12,787

10,454

Total consumer loans

951,514

838,286

416,646

396,636

203,620

97,329

315,719

3,219,750

2,888,044

(1)

Excludes accrued interest receivable.

Accrued interest

receivable on

loans totaled

47.4

million as of

September 30,

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.

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

determining the ACL as of September 30, 2022 and December 31, 2021:

September 30, 2022

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

38,898

2,706

592

39,490

2,706

Commercial loans:

Construction loans

956

Commercial mortgage loans

3,070

933

62,366

65,436

933

C&I loans

17,695

2,788

19,940

37,635

2,788

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

280

60,000

6,462

83,854

143,854

6,462

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

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

51,771

3,966

781

52,552

3,966

Commercial loans:

Construction loans

1,797

Commercial mortgage loans

9,908

1,152

56,361

66,269

1,152

C&I loans

5,781

670

34,043

39,824

670

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

782

68,320

5,887

92,982

161,302

5,887

The allowance related

to collateral dependent loans

reported in the tables

above includes qualitative

adjustments applied to

the loan

portfolio

that

consider

possible

changes

circumstances

that

could

ultimately

impact

credit

losses

and

might

not

reflected

historical

data

forecasted

data

incorporated

the

quantitative

models.

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans

consisted

single-family

residential

properties,

and

for

commercial

and

construction

loans

consisted

primarily

office

buildings,

multifamily

residential

properties,

and

retail

establishments.

The

weighted-average

loan-to-

value coverage

for collateral dependent

loans as of

September 30, 2022

was

%, compared to

% as of

December 31, 2021,

which

was not considered a significant change in the extent to which collateral secured

these loans.

Purchases and Sales of Loans

During

the

first

nine

months

2022,

loans

pooled

into

GNMA

MBS

amounted

approximately

115.7

million,

compared

147.4

million

for

the

same

period

2021.

Also,

during

the

first

nine

months

2022,

the

Corporation

sold

approximately

90.8

million

performing

residential

mortgage

loans

FNMA

and

FHLMC,

compared

sales of

259.6

million

during

the

first

nine

months

2021.

The

Corporation’s

continuing

involvement

with

the

loans

that

sells

consists

primarily

servicing

the

loans.

addition,

the

Corporation

agrees

repurchase

loans

breaches

any

the

representations

and

warranties

included

the

sale

agreement. These

representations and

warranties are consistent

with the GSEs’

selling and servicing

guidelines (

i.e.

, ensuring that

the

mortgage was properly underwritten according to established guidelines).

For loans

pooled into

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or

after January 1,

2003 when certain

delinquency criteria are

met. This option

gives the Corporation

the unilateral ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

have

regained

effective

control

over

the

loans,

required

recognize

the

loans

and

corresponding

repurchase

liability

regardless of its

intent to repurchase

the loans. As

of September

30, 2022 and

December 31, 2021,

rebooked GNMA delinquent

loans

that were included in the residential mortgage loan portfolio amounted

to $

8.1

million and $

7.2

million, respectively.

In addition,

September 29,

2022,

GNMA expanded

the criteria

to permit

issuers to

repurchase

loans of

borrowers

affected

Hurricane Fiona

that meet

the following

eligibility requirements:

(i) the

property securing

the loans

has been

damaged and

is located

within

designated

disaster

area;

and

(ii)

the

borrower

experiencing

economic

hardship

the

designated

disaster,

established by the

underlying insuring or

guaranteeing agency.

Issuers must request

and obtain prior

written approval from

GNMA to

repurchase eligible loans.

During

the

first

nine

months

2022

and

2021,

the

Corporation

repurchased,

pursuant

the

aforementioned

repurchase

option,

8.2

million and $

0.4

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.

Loan

sales

FNMA

and

FHLMC

are

without

recourse

relation

the

future

performance

the

loans.

The

Corporation

repurchased at par loans previously sold to FNMA and FHLMC in the amount

of $

0.3

million during the first nine months of 2022 and

2021. 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

first

nine

months

2022,

the

Corporations

sold

35.2

million

commercial

and

industrial

loan

participation

the

Puerto

Rico region.

Also, during

the first

nine

months of

2021,

three criticized

commercial loan

participations

in the

Florida

region

totaling $

28.0

million were

sold. In

addition, during

the first

nine months

of 2022

and 2021,

the Corporation

purchased commercial

and industrial loans participations in the Florida region totaling $

135.4

million and $

78.1

million, respectively.

During

the

third

quarter

2021,

the

Corporation

sold

52.5

million

of non-performing

residential

mortgage

loans

and

servicing

advances

2.0

million.

The

Corporation

received

31.5

million,

book

value

before

reserves,

for

the

54.5

million of non-performing

loans and related

servicing advances.

Approximately $

20.9

million of reserves

had been allocated

the loans

sold. The

transaction resulted

in total

net charge-offs

of $

23.1

million and

an additional

loss of

approximately $

2.1

million

recorded as a charge to the provision for credit losses in the third

quarter of 2021.

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

11.3

billion as

of September

30, 2022,

credit risk

concentration

was approximately

% in

Puerto Rico,

% in

the United

States,

and

% in the USVI and BVI.

As of

September

30,

2022,

the Corporation

had $

158.4

million outstanding

in loans

extended

to the

Puerto

Rico government,

its

municipalities

and

public

corporations,

compared

178.4

million

December

31,

2021.

September

30,

2022,

approximately

89.9

million

consisted

loans

extended

municipalities

Puerto

Rico

that

are

general

obligations

supported

assigned

property

tax

revenues,

and

29.0

million

loans

which

are

supported

one

specific

sources

municipal

revenues.

The

vast

majority

revenues

the

municipalities

included

the

Corporation’s

loan

portfolio

are

independent

budgetary subsidies provided by the Puerto Rico

central government. These municipalities are required

by law to levy special property

taxes in such amounts as are required to

satisfy the payment of all of their respective general obligation

bonds and notes. In addition to

loans extended to

municipalities, the Corporation’s

exposure to the

Puerto Rico government

as of September

30, 2022 included

11.5

million in loans granted to an affiliate of

the Puerto Rico Electric Power Authority (“PREPA”)

and $

28.0

million in loans to an agency

of the Puerto Rico central government.

addition,

September

30,

2022,

the

Corporation

had

86.7

million

exposure

residential

mortgage

loans

that

are

guaranteed by

the PRHFA,

a governmental

instrumentality that

has been

designated as

a covered

entity under

PROMESA, compared

92.8

million

December

31,

2021.

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

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

of a borrower default.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

September

30,

2022,

the

Corporation

had

37.6

million in loans

to USVI government

public corporations,

compared to $

39.2

million as of

December 31,

2021.

As of September

30,

2022, all loans were currently performing and up to date on principal

and interest payments.

Troubled Debt

Restructurings

The Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program,

well

other

restructurings of

individual

C&I, commercial

mortgage, construction,

and residential

mortgage loans,

fit the

definition of

a TDR.

of September

30, 2022,

the Corporation’s

total TDR

loans held

for investment

amounted to

387.7

million, of

which $

340.1

million

were in accruing

status. See Note 8

– Loans Held for

Investment to the

consolidated financial statements

included in the

2021 Annual

Report on

Form 10-K,

for information

on when

the Corporation

classifies TDR

loans as

either accrual

or nonaccrual

loans. The

total

TDR loans held for investment

consisted of $

242.4

million of residential mortgage

loans, $

67.2

million of C&I loans, $

64.2

million of

commercial mortgage

loans, $

1.3

million of

construction loans,

and $

12.6

million of

consumer loans.

As of

September 30,

2022, the

Corporation

included

TDRs

1.6

million

residential

mortgage

loans

that

were

participating

had

been

offered

trial

modification,

which

generally

represents

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

54.8

million

September

30,

2022,

compared

with

57.6

million

December

31,

2021.

September

30,

2022,

the

Corporation

has

committed

lend

additional

thousand

TDR

consumer loans.

assist

borrowers

affected

the

passing

Hurricane

Fiona

through

Puerto

Rico

September

17,

2022,

the

Corporation

established a

Natural Disaster

Deferral or

Extension Program,

with a

term not

to extend

beyond December

31, 2022,

for residents

Puerto Rico that were

directly impacted by

the passing of the hurricane.

This program provides payment

deferral or term extension

a one payment

basis, not to

exceed three payments,

to retail borrowers

(

i.e.,

borrowers with personal

loans, auto loans,

finance leases,

credit cards and

residential mortgage loans)

that contacted the

Corporation by October

31, 2022 to

request the payment

extension and

opted-in based

on conditions

below.

Loans will

continue

to accrue

interest during

the deferral

or extension

period.

For credit

cards,

borrowers who

were 30

days past

due or

less as

of September

16, 2022

are eligible

for this

program. For

residential mortgage

loans

and consumer

loans, borrowers

who were

60 days

past due

or less

as of

September 16,

2022 are

eligible for

this program.

For both

consumer and residential mortgage loans subject to the deferral programs,

each borrower is required to opt in on a monthly basis to the

program

and

must

resume

making

their

regularly

scheduled

loan

payments

the

end

the

deferral

period.

For

consumer

loans,

deferred amounts

will extend

the maturity

date by

the number

of deferred

periods. For

residential mortgage

loans, deferred

amounts

will be

moved to

the end

of the

loan term.

Borrowers that

make a

payment during

any given

month are

not eligible

for the

program

during that

month. Furthermore,

for customers

that opted

into the

program, the

delinquency

status of

loans subject

to the

deferral or

extension program will be frozen to the status that existed in the month previous

to the month in which the relief is granted.

Loans subject

to the above-described

program are not

considered TDRs since

the deferral or

extension is not

considered more than

insignificant.

Borrowers

were

eligible

payment

deferral

extension

three

payments

only

cumulative

payment

extensions

granted during

the last 12

months did not

exceed six payments,

including the

extensions granted through

this program. As

of October

31, 2022, the Corporation has entered into deferral or extension

payment agreements on

3,366

retail loans totaling $

63.6

million.

The

following

tables

present

TDR

loans

completed

during

the

quarters

and

nine-month

periods

ended

September

30,

2022

and

2021:

Quarter Ended September 30, 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)

TDRs:

Conventional residential mortgage loans

132

1,022

1,154

Construction loans

Commercial mortgage loans

C&I loans

495

Consumer loans:

Auto loans

661

787

Finance leases

Personal loans

133

Credit cards

252

Other consumer loans

Total TDRs

1,166

387

142

1,274

2,988

(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.

Nine-Month Period Ended September 30, 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)

TDRs:

Conventional residential mortgage loans

215

1,484

190

3,709

5,598

Construction loans

Commercial mortgage loans

245

5,178

467

5,890

C&I loans

895

825

1,083

2,803

Consumer loans:

Auto loans

2,120

126

264

2,510

Finance leases

451

469

Personal loans

135

318

Credit cards

647

Other consumer loans

188

318

Total TDRs

3,422

2,629

5,716

862

5,924

18,553

(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.

Quarter Ended September 30, 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)

TDRs:

Conventional residential mortgage loans

345

759

1,454

2,650

Construction loans

Commercial mortgage loans

10,331

C&I loans

9,100

Consumer loans:

Auto loans

364

436

Finance leases

165

191

Personal loans

103

Credit cards

207

Other consumer loans

Total TDRs

739

989

19,674

1,661

23,078

(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.

Nine-Month Period Ended September 30, 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)

TDRs:

Conventional residential mortgage loans

365

759

1,605

2,718

5,447

Construction loans

Commercial mortgage loans

10,586

442

11,028

C&I loans

300

9,100

171

9,571

Consumer loans:

Auto loans

1,372

309

196

1,877

Finance leases

526

552

Personal loans

263

336

Credit cards

1,171

Other consumer loans

105

234

Total TDRs

1,855

2,014

21,776

4,510

30,216

(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.

Quarter Ended September 30, 2022

Quarter Ended September 30, 2021

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)

TDRs:

Conventional residential mortgage loans

1,220

1,154

2,654

2,650

Construction loans

Commercial mortgage loans

10,433

10,331

C&I loans

495

9,100

Consumer loans:

Auto loans

790

787

435

436

Finance leases

190

191

Personal loans

116

133

103

Credit Cards

251

252

207

Other consumer loans

Total TDRs

141

3,037

2,988

123

23,181

23,078

Nine-Month Period Ended September 30, 2022

Nine-Month Period Ended September 30, 2021

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)

TDRs:

Conventional residential mortgage loans

5,668

5,598

5,552

5,447

Construction loans

Commercial mortgage loans

5,897

5,890

11,091

11,028

C&I loans

3,031

2,803

9,694

9,571

Consumer loans:

Auto loans

123

2,512

2,510

101

1,875

1,877

Finance leases

469

550

552

Personal loans

301

318

330

336

Credit Cards

139

646

647

203

1,171

Other consumer loans

311

318

233

234

Total TDRs

451

18,835

18,553

483

30,496

30,216

Loan modifications considered

TDR loans that defaulted

(failure by the borrower

to make payments

of either principal, interest,

both

for

period

days

more)

during

the

quarters

and

nine-month

periods

ended

September

30,

2022

and

2021,

and

had

become TDR loans during the 12-months preceding the default date, were

as follows:

Quarter Ended September 30, 2022

Quarter Ended September 30, 2021

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

126

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

776

433

Finance leases

Personal loans

Credit cards

Other consumer loans

Total

888

628

Nine-Month Period Ended September

30, 2022

Nine-Month Period Ended September

30, 2021

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

534

304

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

1,674

1,164

Finance leases

Personal loans

Credit cards

201

161

Other consumer loans

Total

125

2,444

108

1,666

For

certain

TDR

loans,

the

Corporation

splits

the

loans

into

two

new

notes

(the

“Note

A”

and

the

“Note

B”).

The

Note

restructured to comply

with the Corporation’s

lending standards at

current market rates

and is tailored to

suit the customer’s

ability to

make

timely

interest

and

principal

payments.

The

Note

includes

the

granting

the

concession

the

borrower

and

varies

situation. The

B Note is

fully charged-off,

unless it is

collateral-dependent and

the source of

repayment is

independent of

the A Note

in which

case a

partial charge

-off may

be recorded.

At the

time of

the restructuring,

the A Note

is identified

and classified

as a

TDR

loan. During the nine months ended September 30, 2022 and 2021, there were

no new Note A and B restructurings.

NOTE 4 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

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

segment for the indicated periods:

Residential

Mortgage Loans

Construction Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Quarter Ended September 30, 2022

(In thousands)

ACL:

Beginning balance

65,231

2,020

32,619

36,203

116,079

252,152

Provision for credit losses - expense (benefit)

755

(179)

(2,383)

(1,228)

17,387

14,352

Charge-offs

(1,466)

(63)

(3)

(8)

(12,522)

(14,062)

Recoveries

559

494

4,264

5,417

Ending balance

65,079

1,821

30,290

35,461

125,208

257,859

Residential

Mortgage Loans

Construction Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Nine-Month Period Ended September 30, 2022

(In thousands)

ACL:

Beginning balance

74,837

4,048

52,771

34,284

103,090

269,030

Provision for credit losses - (benefit) expense

(6,913)

(2,242)

(23,758)

(575)

43,516

10,028

Charge-offs

(6,073)

(123)

(42)

(366)

(32,765)

(39,369)

Recoveries

3,228

138

1,319

2,118

11,367

18,170

Ending balance

65,079

1,821

30,290

35,461

125,208

257,859

Residential

Mortgage Loans

Construction Loans

Commercial

Mortgage Loans

Commercial &

Industrial Loans

Consumer Loans

Total

Quarter Ended September 30, 2021

(In thousands)

ACL:

Beginning balance

112,882

4,757

72,452

37,470

97,397

324,958

Provision for credit losses - (benefit) expense

(6,206)

527

(4,660)

(4,449)

6,054

(8,734)

Charge-offs

(25,418)

(7)

(429)

(167)

(8,345)

(34,366)

Recoveries

1,968

494

3,955

6,502

Ending balance

83,226

5,319

67,406

33,348

99,061

288,360

Residential

Mortgage Loans

Construction Loans

Commercial

Mortgage Loans

Commercial &

Industrial Loans

Consumer Loans

Total

Nine-Month Period Ended September 30, 2021

(In thousands)

ACL:

Beginning balance

120,311

5,380

109,342

37,944

112,910

385,887

Provision for credit losses - (benefit) expense

(9,556)

(125)

(40,779)

(10,187)

11,168

(49,479)

Charge-offs

(31,170)

(52)

(1,304)

(1,036)

(34,904)

(68,466)

Recoveries

3,641

116

147

6,627

9,887

20,418

Ending balance

83,226

5,319

67,406

33,348

99,061

288,360

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

Nature

Business

and

Summary

Significant Accounting

Policies, in

the audited

consolidated financial

statements included

in the

2021 Annual

Report on

Form 10-K,

for each portfolio segment.

During

the

first

nine

months

2022,

the

Corporation

applied

probability

weights

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

a variety

factors

such

as economic

uncertainties

associated

continued

conflict in Ukraine, the overall inflationary

environment and a potential slowdown

in economic activity as a result of

the FED’s policy

to control inflationary economic conditions. For periods prior to 2022,

the Corporation calculated the ACL using the baseline scenario.

September

30,

2022,

the

ACL

for

loans

and

finance

leases

was

257.9

million,

down

approximately

11.1

million

from

December

31,

2021.

The

ACL

reduction

for

commercial

and

construction

loans

was

23.5

million

during

the

first

nine

months

2022,

primarily reflecting

reduced COVID-19

uncertainties and,

to a

lesser extent,

a reduction

in qualitative

reserves due

to updated

borrowers’ financial information received during

the third quarter of 2022. In addition, there was an ACL reduction

of $

9.7

million for

residential

mortgage

loans,

partially

offset

22.1

million

increase

the

ACL

for

consumer

loans.

The

net

reduction

for

residential mortgage

loans was

primarily driven

by the

overall decrease

in the

size of

this portfolio.

The ACL

increase for

consumer

loans consisted of charges

to the provision of $

43.5

million recorded in the first

nine months of 2022

to account for the increase

in the

size

the

portfolio

auto

loans

and

finance

leases;

deterioration

the

long-term

outlook

certain

macroeconomic

variables,

such as the regional

unemployment rate; and an

increase in charge-off

levels mostly related

to the auto and

credit card loan portfolios,

partially offset

by net

charge-offs

of $

21.4

million. 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.

On September 17, 2022, Hurricane Fiona made landfall

in the southwestern part of Puerto Rico as a Category 1 storm.

As part of its

ACL calculation,

the Corporation

considers

the need

for qualitative

adjustments

that include

factors such

as natural

disasters. As

September 30,

2022, management

determined that

no separate qualitative

reserves for

this natural disaster

were required

on the ACL.

Notwithstanding, estimates of the storm’s

effect on loan losses may

change over time as additional

information becomes available and

any related revisions in the ACL calculation will be reflected in the provision

for credit losses as they occur.

Total

net

charge-offs

decreased

19.3

million

8.6

million,

when

compared

the

third

quarter

2021.

The

variance

consisted of

a $

22.6

million decrease

in net

charge-offs

on residential

mortgage loans,

of which

23.1

million was

related to

charge-

offs

recognized

part

the

bulk

sale

nonaccrual

residential

mortgage

loans

and

servicing

advances

during

the

third

quarter of

2021; and

a $

0.5

million increase in

net recoveries in

the commercial

and construction

loans portfolio;

partially offset

by a

3.8

million

increase

net

charge-offs

consumer

and

finance

leases,

primarily

reflected

the

auto

loans

portfolios.

Total

net

charge-offs

decreased

by $

26.8

million

to $

21.1

million,

when

compared

the nine-month

period

ended

September 30,

2021.

The

variance

consisted of

a $

3.5

million

decrease

in net

charge-offs

on consumer

and finance

leases, primarily

reflected in

the auto

and

credit

card

loan

portfolios;

and

24.7

million

decrease

net

charge-offs

residential

mortgage

loans

mainly

due

the

aforementioned

bulk sale

completed

during the

third quarter

of 2021;

partially offset

by lower

net recoveries

in the

commercial

and

construction loans portfolio by $

1.4

million.

The tables below present the ACL related to loans and finance leases and the carrying

value of loans by portfolio segment as of

September 30, 2022 and December 31, 2021:

Residential

Mortgage Loans

Construction Loans

Commercial

Mortgage Loans

Commercial and

Industrial Loans

(1)

Consumer Loans

Total

As of September 30, 2022

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,830,974

123,994

2,265,614

2,858,286

3,219,750

11,298,618

Allowance for credit losses

65,079

1,821

30,290

35,461

125,208

257,859

Allowance for credit losses to

amortized cost

2.30

1.47

1.34

1.24

3.89

2.28

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 September 30, 2022 and December 31, 2021, includes $

17.9

million and $

145.0

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

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

which

the

Corporation

exposed

credit

risk

via

contractual

obligation

extend

credit,

such

unfunded

loan

commitments

and

standby

letters

credit

for

commercial and construction loans,

unless the obligation is unconditionally

cancellable by the Corporation. The

Corporation estimates

the ACL for

these off-balance

sheet exposures

following the methodology

described in

Note 1 –

Nature of Business

and Summary

Significant

Accounting

Policies,

the audited

consolidated

financial

statements,

which are

included

the 2021

Annual Report

Form 10-K.

As of

September 30,

2022, the

ACL for

off-balance

sheet credit

exposures was

4.2

million, up

2.7

million from

1.5

million

as of

December

31,

2021,

mainly

driven

by an

increase

unfunded

loan

commitments

principally

due

newly

originated

facilities which remained undrawn as of September 30, 2022.

The following

table presents

the activity

in the

ACL for

unfunded loan

commitments and

standby letters

of credit

for the

quarters

and nine-month periods ended September 30, 2022 and 2021:

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Beginning Balance

2,171

2,730

1,537

5,105

Provision for credit losses - expense (benefit)

2,071

(971)

2,705

(3,346)

Ending balance

4,242

1,759

4,242

1,759

NOTE 5

–

OTHER REAL ESTATE

OWNED

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

September 30,

December 31,

2022

2021

(In thousands)

OREO

OREO balances, carrying value:

Residential

(1)

30,036

29,533

Commercial

6,033

7,331

Construction

2,613

3,984

Total

38,682

40,848

(1)

Excludes $

24.3

million and $

22.2

million as of September 30, 2022 and December 31, 2021, respectively, of foreclosures

that meet the conditions of ASC Subtopic

310-40 "Reclassification of Residential Real Estate Collateralized

Consumer Mortgage Loans upon Foreclosure," and are

presented as a receivable as part of other

assets in the consolidated statements of financial condition.

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

Goodwill

each

September

30,

2022

and

December

31,

2021

amounted

38.6

million.

The

Corporation’s

policy

assess goodwill and

other intangibles for

impairment on an annual

basis during the

fourth quarter of each

year, and

more frequently if

events

circumstances

lead

management

believe

that

the

values

goodwill

other

intangibles

may

impaired.

During

the

fourth quarter

of 2021, as

part of its

annual evaluation,

the Corporation performed

a qualitative assessment

to determine if

a goodwill

impairment

test was necessary.

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

determine

positive

assertion can be

made that it is more

likely than not that

the fair value of

each reporting unit is

greater than its carrying

amount. As of

December 31,

2021, the

Corporation concluded

that it

is more-likely-than-not

that the

fair value

of the

reporting units

exceeded their

carrying

value.

The

Corporation

determined

that

there

have

been

significant

events

since

the

last

annual

assessment

that

could

indicate potential

goodwill impairment

on reporting

units for

which the

goodwill is

allocated. As a

result,

impairment charges

for

goodwill were recorded during the first nine months of 2022.

There

were

changes in

the carrying

amount of

goodwill during

the quarter

and

nine-month

period ended

September 30,

2022.

The

changes

the

carrying

amount

goodwill

attributable

operating

segments

during

2020

and

the

nine-month

period

ended

September 30, 2021 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)

385

533

3,313

4,231

Goodwill, December 31, 2020

959

2,733

8,248

26,692

38,632

Measurement period adjustment

(2)

(148)

(21)

Goodwill, September 30, 2021

1,012

2,807

8,100

26,692

38,611

(1) Recognized in connection with the BSPR acquisition on September

1, 2020. Refer to Note 2 - Business Combination included

in the 2021 Annual Report on Form 10-K for additional

information.

(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").

The

following

table

shows

the

gross

amount

and

accumulated

amortization

the

Corporation’s

intangible

assets

subject

amortization as of the indicated dates:

As of

September 30,

December 31,

2022

2021

(Dollars in thousands)

Core deposit intangible:

Gross amount

87,544

Accumulated amortization

(64,726)

(58,973)

Net carrying amount

22,818

28,571

Remaining amortization period (in years)

7.3

8.0

Purchased credit card relationship intangible:

Gross amount

3,800

Accumulated amortization

(3,424)

(2,602)

Net carrying amount

376

1,198

Remaining amortization period (in years)

0.9

1.7

Insurance customer relationship intangible:

Gross amount

1,067

Accumulated amortization

(1,016)

(902)

Net carrying amount

165

Remaining amortization period (in years)

0.3

1.1

During

the quarter

and

nine-month

period

ended

September

30,

2022,

the

Corporation recognized

2.2

million

and $

6.7

million,

respectively,

in amortization

expense

on its

other intangibles

subject to

amortization,

compared to

2.8

million

and $

8.7

million for

the same periods

in 2021, respectively.

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,

sooner

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

September 30, 2022.

The estimated

aggregate annual

amortization expense

related to the

intangible assets

subject to amortization

for future periods

was

as follows as of September 30, 2022:

Amount

(In thousands)

2022

2,126

2023

7,736

2024

6,416

2025

3,509

2026

872

2027 and after

2,586

NOTE 7 – NON CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIE”) AND SERVICING

ASSETS

The

Corporation

transfers

residential

mortgage

loans in

sale or

securitization

transactions

which

it has

continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

sales

required

applicable accounting guidance.

When

evaluating

the

need

consolidate

counterparties

which

the

Corporation

has

transferred

assets,

with

which

the

Corporation has

entered into

other transactions,

the Corporation

first determines

if the

counterparty is

an entity

for which

a variable

interest

exists.

scope

exception

applicable

and

variable

interest

exists,

the

Corporation

then

evaluates

whether

the

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

or not.

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

some level of continuing involvement:

Trust-Preferred

Securities

In April

2004, FBP Statutory

Trust I,

a financing trust

that is wholly

owned by

the Corporation, sold

to institutional

investors $

100

million of its

variable-rate trust-preferred

securities (“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

issuance

costs,

are

presented

the

Corporation’s

consolidated

statements

financial

condition

other

borrowings.

The

variable-rate

TRuPs

are

fully

and

unconditionally

guaranteed

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 September 30,

2022 and December 31, 2021, these Junior Subordinated Deferrable Debentures amounted to $183.8 million.

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 September 30,

2022, the Corporation

was current on all

interest payments due on its subordinated debt.

Private Label MBS

During

2004

and

2005,

unaffiliated

party,

referred

in this

subsection

the

seller,

established

series

statutory

trusts

effect

the

securitization

mortgage

loans

and

the

sale

trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing for

a fee, which

is senior to

the obligations to

pay private label

MBS holders. The

seller then entered

into a sales

agreement

through

which

it sold

and

issued

the

private

label

MBS in

favor

the

Corporation’s

banking

subsidiary,

FirstBank.

Currently,

the

Bank is the

sole owner

of the private

label MBS; the

servicing of

the underlying residential

mortgages that

generate the principal

and

interest

cash

flows

performed

another

third

party,

which

receives

servicing

fee.

These

private

label

MBS

are

variable-rate

securities indexed

3-month LIBOR

plus a spread.

The principal payments

from the underlying

loans are remitted

to a paying

agent

(servicer), who then remits

interest to the Bank. Interest

income is shared to a

certain extent with the FDIC,

which has an interest

only

strip (“IO”)

tied to

the cash

flows of

the underlying

loans and

is entitled

to receive

the excess

of the

interest income

less a

servicing

fee

over

the

variable

rate

income

that

the

Bank

earns

the

securities.

This

limited

the

weighted-average

coupon

the

mortgage

loans. The

FDIC became

the owner

of the

IO upon

its intervention

of the

seller,

a failed

financial institution.

No recourse

agreement

exists,

and

the

Bank,

the

sole

holder

the

securities,

absorbs

all

risks

from

losses

non-accruing

loans

and

repossessed

collateral.

September

30,

2022,

the

amortized

cost

and

fair

value

these

private

label

MBS

amounted

8.6

million

and

6.2

million,

respectively,

with

weighted

average

yield

5.93

which

included

part

the

Corporation’s

available-for-sale

debt

securities

portfolio.

described

Note

–

Debt

Securities,

above,

the

ACL

these

private

label

MBS

amounted to $

0.3

million as of September 30, 2022.

Investment in Unconsolidated Entity

February

16,

2011,

FirstBank

sold

asset

portfolio

consisting

performing

and

nonaccrual

construction,

commercial

mortgage and

commercial and industrial

loans with an

aggregate book

value of $

269.3

million to CPG/GS,

an entity organized

under

the

laws

the

Commonwealth

Puerto

Rico

and

majority

owned

PRLP

Ventures

LLC

(“PRLP”),

company

created

Goldman,

Sachs &

Co. and

Caribbean

Property Group.

In connection

with the

sale, the

Corporation

received $

88.5

million in

cash

and a

% 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

October

2019.

FirstBank’s

equity

interest

in CPG/GS

accounted

for under

the equity

method.

FirstBank

recorded

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,

further losses have been or will be recorded on this investment.

CPG/GS

used

cash

proceeds

the

aforementioned

seller-financed

loan

cover

operating

expenses

and

debt

service

payments,

including those

related to

the loan

that was paid

off in

October 2019.

FirstBank will

not receive

any return

on its equity

interest until

PRLP receives

an aggregate

amount equivalent

to its

initial investment

and a

priority return

of at

least

%, which

has not

occurred,

resulting in FirstBank’s

interest in CPG/GS being

subordinate to PRLP’s

interest. CPG/GS will

then begin to

make payments pro

rata

PRLP

and

FirstBank,

and

respectively,

until

FirstBank

has

achieved

return

its

invested

capital

and

the

aggregate amount of distributions is equal to FirstBank’s

capital contributions to CPG/GS.

The

Bank

has

determined

that

CPG/GS

VIE

which

the

Bank

not

the

primary

beneficiary.

determining

the

primary

beneficiary

of CPG/GS,

the Bank

considered

applicable

guidance

that requires

the Bank

to qualitatively

assess the

determination

whether

it is

the primary

beneficiary (or

consolidator) of

CPG/GS based

on whether

it has

both

the power

to direct

the activities

CPG/GS that most significantly

affect the entity’s

economic performance and the

obligation to absorb losses

of, or the right

to receive

benefits from, CPG/GS

that could potentially

be significant to

the VIE. The

Bank determined that

it does not

have the power to

direct

the activities that most significantly

impact the economic performance

of CPG/GS as it does not

have the right to

manage or influence

the loan portfolio, foreclosure proceedings,

or the construction and sale

of the property; therefore, the

Bank concluded that it is not

the

primary beneficiary of CPG/GS.

Servicing Assets (MSRs)

The

Corporation

typically

transfers

first

lien

residential

mortgage

loans in

conjunction

with

GNMA

securitization

transactions

which the

loans are

exchanged for

cash or

securities that

are readily

redeemed for

cash proceeds

and servicing

rights. The

securities

issued

through

these

transactions

are

guaranteed

GNMA

and,

under

seller/servicer

agreements,

the

Corporation

required

service

the

loans

accordance

with

the

issuers’

servicing

guidelines

and

standards.

September

30,

2022,

the

Corporation

serviced

loans securitized

through

GNMA with

a principal

balance

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 shown below for the indicated periods:

Quarter Ended

Nine-Month Period Ended

September 30,

(In thousands)

2022

2021

2022

2021

Balance at beginning of period

30,277

32,335

30,986

33,071

Capitalization of servicing assets

679

1,146

2,637

4,046

Amortization

(1,247)

(1,817)

(3,850)

(5,374)

Temporary impairment

recoveries, net

Other

(1)

(20)

(148)

(107)

Balance at end of period

29,690

31,685

29,690

31,685

(1)

Mainly represents adjustments related to the repurchase

of loans serviced for others.

Impairment

charges

are

recognized

through

valuation

allowance

for

each

individual

stratum

servicing

assets.

The

valuation

allowance

is adjusted

to reflect

the amount,

if any,

by which

the cost

basis of

the servicing

asset for

a given

stratum of

loans being

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

asset for a given stratum is not recognized.

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

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Balance at beginning of period

165

202

Recoveries

(1)

(12)

(65)

(49)

Balance at end of period

153

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:

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Servicing fees

2,758

3,213

8,398

9,146

Late charges and prepayment penalties

201

614

543

Adjustment for loans repurchased

(20)

(32)

(148)

Servicing income, gross

2,939

3,268

8,864

9,541

Amortization and impairment of servicing assets

(1,246)

(1,764)

(3,785)

(5,284)

Servicing income, net

1,693

1,504

5,079

4,257

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

Nine-Month Period Ended September 30, 2022:

Constant prepayment rate:

Government-guaranteed mortgage loans

6.6

18.3

4.8

Conventional conforming mortgage loans

6.6

18.4

3.4

Conventional non-conforming mortgage loans

6.0

21.9

3.8

Discount rate:

Government-guaranteed mortgage loans

11.8

12.0

11.5

Conventional conforming mortgage loans

9.8

10.0

9.5

Conventional non-conforming mortgage loans

12.4

14.5

11.5

Nine-Month Period Ended September 30, 2021:

Constant prepayment rate:

Government-guaranteed mortgage loans

6.1

17.4

3.7

Conventional conforming mortgage loans

6.2

17.4

2.8

Conventional non-conforming mortgage loans

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

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 September

30, 2022 and

December 31, 2021 were as follows:

September 30,

December 31,

(Dollars in thousands)

2022

2021

Carrying amount of servicing assets

29,690

30,986

Fair value

44,621

42,132

Weighted-average

expected life (in years)

7.86

7.96

Constant prepayment rate (weighted-average annual

rate)

6.45

6.55

Decrease in fair value due to 10% adverse change

1,048

1,027

Decrease in fair value due to 20% adverse change

2,052

2,011

Discount rate (weighted-average annual rate)

10.68

11.17

Decrease in fair value due to 10% adverse change

1,923

1,852

Decrease in fair value due to 20% adverse change

3,700

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.

NOTE 8 – DEPOSITS

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

September 30, 2022

December 31, 2021

(In thousands)

Type of account:

Non-interest-bearing deposit accounts

6,235,782

7,027,513

Interest-bearing saving accounts

4,089,664

4,729,387

Interest-bearing checking accounts

4,076,258

3,492,645

Certificates of deposit ("CDs")

2,122,713

2,434,932

Brokered CDs

45,164

100,417

Total

16,569,581

17,784,894

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

CDs, as of September 30, 2022:

Total

(In thousands)

Three months or less

572,661

Over three months to six months

374,963

Over six months to one year

555,086

Over one year to two years

369,054

Over two years to three years

174,360

Over three years to four years

47,133

Over four years to five years

67,846

Over five years

6,774

Total

2,167,877

The following were the components of interest expense on deposits for the

indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Interest expense on deposits

10,045

9,876

25,619

33,718

Accretion of premiums from acquisitions

(92)

(243)

(384)

(1,089)

Amortization of broker placement fees

177

Total interest expense on deposits

9,978

9,682

25,324

32,806

Total

U.S. time deposits

with balances

of more

than $250,000

amounted to

911.6

million and

990.2

million as of

September 30,

2022 and December

31, 2021, respectively.

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 September 30, 2022

and December 31, 2021 unamortized

broker placement fees

amounted to $

0.1

million and $

0.2

million, respectively,

which are amortized over

the contractual maturity of

the brokered CDs under

the interest method.

NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO

REPURCHASE

Securities sold under agreements to repurchase (repurchase agreements)

as of the indicated dates consisted of the following:

September 30, 2022

December 31, 2021

(In thousands)

Long-term fixed-rate repurchase agreements

(1)

200,000

300,000

(1)

Weighted-average interest rate of

3.90

% and

3.35

% as of September 30, 2022 and December 31, 2021, respectively.

The repurchase agreements mature as follows as of the indicated date:

September 30, 2022

(In thousands)

Over one year to three years

200,000

As of

September

30,

2022 and

December

31, 2021,

the securities

underlying

such agreements

were delivered

to the

dealers with

which

the

repurchase

agreements

were

transacted.

accordance

with

the

master

agreements,

the

event

default,

repurchase

agreements

have

right

set-off

against

the

other

party

for

amounts

owed

under

the

agreement

and

any

other

amount

obligation owed with

respect to any other

agreement or transaction between

them. As of September

30, 2022 and December

31, 2021,

repurchase agreements were overcollateralized.

The repurchase agreements as of September 30, 2022, grouped by counterparty,

were as follows:

Weighted-Average

Counterparty

Amount

Maturity (In months)

(Dollars in thousands)

Credit Suisse First Boston

200,000

NOTE 10 – ADVANCES

FROM THE FEDERAL HOME LOAN BANK

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

dates:

September 30,

December 31,

2022

2021

(In thousands)

Long-term rate advances from FHLB

(1)

200,000

(1)

Weighted-average interest rate

2.16

% as of December 31, 2021. The $

200

million in FHLB advances outstanding as of December 31, 2021

matured and were repaid in August 2022.

NOTE 11 – OTHER BORROWINGS

Other borrowings, as of the indicated dates, consisted of:

September 30,

December 31,

2022

2021

(In thousands)

Floating rate junior subordinated debentures (FBP Statutory Trust I)

(1)

65,205

Floating rate junior subordinated debentures (FBP Statutory Trust II)

(2)

118,557

183,762

(1)

Amount represents junior subordinated interest-bearing

debentures due in 2034 with a floating

interest rate of

2.75

% over

3-month LIBOR

(

6.28

% as of September 30, 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

(

6.03

% as of September 30, 2022

and

2.71

% as

of December 31, 2021).

NOTE 12 – EARNINGS PER COMMON SHARE

The calculations of earnings per common share for the quarters and nine-month periods

ended September 30, 2022 and 2021 are as

follows:

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands, except per share information)

Net income

74,603

75,678

231,898

207,386

Less: Preferred stock dividends

(669)

(2,007)

Net income attributable to common stockholders

74,603

75,009

231,898

205,379

Weighted-Average

Average common

shares outstanding

187,236

206,725

193,217

212,406

Average potential

dilutive common shares

1,083

1,071

1,151

1,117

Average common

shares outstanding - assuming dilution

188,319

207,796

194,368

213,523

Earnings per common share:

Basic

0.40

0.36

1.20

0.97

Diluted

0.40

0.36

1.19

0.96

Earnings

per

common

computed

dividing

net

income

attributable

common

stockholders

the

weighted-average

number of common shares issued and outstanding. Net income attributable

to common stockholders represents net income adjusted for

any preferred

stock dividends,

including any

dividends declared

but not

yet paid,

and any cumulative

dividends related

to the

current

dividend period

that have

not been

declared as

of the

end of

the period.

Basic weighted-average

common shares

outstanding exclude

unvested shares of restricted stock that do not contain non-forfeitable

dividend rights.

Potential dilutive

common shares

consist of

unvested shares

of restricted

stock that

do not

contain

non-forfeitable dividend

rights

using the

treasury stock

method. This

method assumes

that proceeds

equal to

the amount

of compensation

cost attributable

to future

services

used

repurchase

the

open

market

the

average

market

price

for

the

period.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock

outstanding

during

the

period

that

result

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock method

are not included

in the computation

dilutive

earnings

per

since

their

inclusion

would

have an

antidilutive

effect

earnings

per

share.

There

were

antidilutive

common

stock

the

quarters

and

nine-month

periods

ended

September

30,

2022

and

2021.

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.

NOTE 13 – STOCK-BASED COMPENSATION

April

29,

2008,

the

Corporation’s

stockholders

approved

the

First

Bancorp.

2008

Omnibus

Incentive

Plan

(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

September 30,

2022,

there were

3,833,996

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

receive

awards

and

establish

the

terms

and

conditions

any

awards,

subject

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

outstanding

common stock

on the date of

the respective grant. The shares of restricted stocks

granted to employees are subject to the following vesting period: fifty

percent (

%) of those shares

vest on the

two-year

anniversary

of the grant

date and the remaining

% vest on the

three-year

anniversary

of the grant

date. The

shares of

restricted

stocks granted

to directors

are generally

subject

to vesting

on the

one-year

anniversary

of the grant

date. Common shares issued during the first nine months of 2022 in connection with restricted

stock awards were reissued from treasury

shares.

The following table summarizes the restricted stock activity in the first nine months of 2022

and 2021 under the Omnibus Plan:

Nine-Month Period Ended

September 30, 2022

September 30, 2021

Number of shares

Weighted-Average

Number of shares

Weighted-Average

of restricted

Grant Date

of restricted

Grant Date

stock

Fair Value

stock

Fair Value

Unvested shares outstanding at beginning of period

1,148,775

6.61

1,320,723

5.74

Granted

(1)

323,364

13.18

316,430

11.40

Forfeited

(15,108)

8.79

(24,792)

6.32

Vested

(510,007)

6.05

(407,659)

7.70

Unvested shares outstanding at end of period

947,024

9.12

1,204,702

6.55

(1)

Includes for the nine-month period ended

September 30, 2022,

24,972

shares of restricted stock awarded to independent

directors and

298,392

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 nine-month

period ended September 30,

2021,

26,361

shares of restricted

stock awarded to independent directors and

290,069

shares of restricted stock awarded to

employees, of which

19,271

shares were granted to retirement-eligible employees

and thus charged to earnings

as of the grant date.

For

the

quarter

and

nine-month

period

ended

September

30,

2022,

the

Corporation

recognized

0.9

million

and

2.7

million,

respectively, of stock-based compensation expense related to restricted stock awards, compared to $

0.8

million and $

2.6

million for the

same periods in 2021, respectively.

As of September

30, 2022, there was $

4.6

million of total unrecognized

compensation

cost related to

unvested shares

of restricted stock.

The weighted average

period over which the Corporation

expects to recognize

such cost was

1.6

years

as of September 30, 2022.

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

which

the

forfeiture estimate is changed. If the actual forfeiture

rate is higher than the estimated forfeiture rate, an adjustment

is made to increase

the

estimated

forfeiture

rate,

which

will

decrease

the

expense

recognized

the

financial

statements.

the

actual

forfeiture

rate

lower

than

the

estimated

forfeiture

rate,

adjustment

made

decrease

the

estimated

forfeiture

rate,

which

will

increase

the

expense recognized in the financial statements.

Performance

Units

Under the Omnibus Plan, the Corporation may award performance

units to Omnibus Plan 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. 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 in the first nine months of 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 in the first nine months of 2022 and 2021:

Nine-Month Period Ended

(Number of units)

September 30, 2022

September 30, 2021

Performance units at beginning of year

814,899

1,006,768

Additions

166,669

160,485

Vested

(1)

(189,645)

(304,408)

Performance units at end of period

791,923

862,845

(1)

Units vested during the nine-month period ended September 30,

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 the nine-month period ended September

30, 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

outstanding

common stock

on the

respective date of the grant.

For the quarter and nine-month period ended September 30, 2022,

the Corporation recognized

0.5

million

and

1.3

million, respectively, of

stock-based compensation expense related to

performance units, compared

0.5

million and

1.5

million for the same periods

in 2021, respectively.

As of September 30,

2022, there was $

3.0

million of total unrecognized

compensation

cost

related to

unvested performance units

that

the

Corporation expects

recognize over

the

three years.

The

total

amount

compensation

expense recognized

reflects management’s

assessment of the

probability that

the pre-established

performance goal

will

achieved.

The Corporation

will recognize

cumulative

adjustment

compensation

expense

in the

then-current

period

to reflect

any changes in the probability of achievement of the performance goals.

Shares withheld

During the

first nine

months of

2022, the

Corporation withheld

202,649

shares (first

nine months

of 2021

–

213,757

shares) of

the

restricted

stock

and

performance

units

that

vested

during

such

period

cover

the

officers’

payroll

and

income

tax

withholding

liabilities;

these

are

held

treasury

shares.

The

Corporation

paid

cash

any

fractional

salary

stock

which

officer

was entitled.

the consolidated

financial

statements,

the

Corporation

presents shares

withheld

for

tax purposes

as common

stock repurchases.

NOTE 14 – STOCKHOLDERS’ EQUITY

Stock Repurchase Programs

On April

27, 2022,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation

may

repurchase

350

million

its

outstanding

common

stock,

expected

executed

through

four

quarters,

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

capital,

stock

trading

price,

and

general

market

conditions.

The

repurchase

program

may

be modified,

extended,

suspended,

or terminated

any

time at

the

Corporation’s

discretion.

The program

does

not

obligate

the

Corporation

acquire

any

specific

number

shares.

During

the

third

quarter

2022,

the

Corporation

repurchased

5,385,138

shares of common stock

through open market transactions

at an average purchase

price of $

13.93

per share for

a total price of

approximately $

million, under this stock

repurchase program. The

shares received are held

as treasury stock.

As of

September 30, 2022, the Corporation

has remaining authorization to

repurchase approximately $

175

million of common stock. For

the

nine-month period

ended September

30, 2022,

First BanCorp. has

repurchased approximately

15.9

million shares for

a total purchase

price of $

225.0

million under all stock repurchase programs.

Common Stock

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

the first nine months of 2022:

Total

Number of Shares

Common stock outstanding, beginning balance

201,826,505

Common stock repurchased

(1)

(16,066,747)

Common stock reissued from treasury stock

513,009

Restricted stock forfeited

(15,108)

Common stock outstanding, ending balance

186,257,659

(1)

Consisted

12,454,401

common

stock

repurchased

the

open

market

average

price

14.05

per

for

total

purchase

price

approximately $

175

million under

the $

350

million stock

repurchase program

announced in

April 2022;

3,409,697

shares of

common stock

repurchased in

the

open market at

an average price

of $

14.66

for a total

purchase price of

approximately $

million under the prior

300

million stock repurchase

program which

was completed during the first quarter of 2022 and;

202,649

shares of common stock surrendered to cover officers' payroll and

income taxes.

For

the

quarter

and

nine-month

period

ended

September

30,

2022,

total

cash

dividends

declared

common

stock

amounted to $

22.7

million and $

65.9

million, respectively,

compared to $

14.6

million and $

44.9

million for the same

periods in 2021.

October 27, 2022

the

Corporation’s

Board

Directors

declared

quarterly

cash

dividend

0.12

per

common

payable

December 9, 2022

to shareholders of record at the

close of business on

November 25, 2022

. The Corporation intends to continue

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.

Preferred Stock

The

Corporation

has

50,000,000

authorized

of preferred

stock

with

par value

of $

1.00

redeemable

the

Corporation’s

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

the shares of each series have such rights and preferences

as are

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

On November

30, 2021,

the Corporation

redeemed

all of

its

1,444,146

outstanding

shares of

Series A

through

Series E

Preferred

Stock for

its liquidation

value of

per share

totaling $

36.1

million. The

difference

between the

liquidation value

and net

carrying

value was $

1.2

million, which was recorded

as a reduction to retained earnings

in 2021. The redeemed preferred

stock shares were not

listed on any

securities exchange

or automated

quotation system.

shares of preferred

stock have

been subsequently

issued or were

outstanding as of September 30, 2022. For the quarter

and nine-month period ended September 30, 2021, total cash dividends

declared

on shares of preferred stock amounted to $

0.7

million and $

2.0

million, respectively.

Treasury stock

During the first

nine months of

2022 and 2021,

the Corporation withheld

and recognized in

treasury stock an

aggregate of

202,649

shares and

213,757

shares, respectively,

of the restricted

stock and performance

units that vested

during those periods,

for income tax

withholding purposes.

Also recorded

as treasury

stock for

the first

nine months

of 2022

are the

15,864,098

shares of

common stock

repurchased as

part of

the stock

repurchase programs

described above

and

15,108

restricted shares

of common

stock awarded

under

the

Omnibus

Plan

that

were

forfeited

prior

vesting.

September

30,

2022

and

December

31,

2021,

the

Corporation

had

37,405,457

and

21,836,611

shares held as treasury

stock, respectively.

See Note 1 –

Basis of Presentation

and Significant Accounting

Policies

above

for

information

the

change

accounting

method

for

accounting

for

the

Corporation’s

treasury

stock

from

par

value to a cost method.

FirstBank Statutory Reserve (Legal Surplus)

The Banking Law

of the Commonwealth

of Puerto Rico requires

that a minimum of

% 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

the

legal

surplus

reserve

from

retained

earnings

are

not

available

for

distribution

the

Corporation,

including

for

payment

as dividends

to the

stockholders,

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.

FirstBank’s

legal surplus

reserve,

included as

part of

retained earnings

in the

Corporation’s

consolidated statements

of financial

condition, amounted

to $

137.6

million

as of

each of

September 30,

2022 and

December 31,

2021. There

were

transfers to

the legal

surplus reserve

during the

first nine

months of 2022.

NOTE 15 – OTHER COMPREHENSIVE LOSS

Changes in Accumulated Other Comprehensive

Loss by Component

(1)

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(in thousands)

Unrealized net holding losses on available-for-sale

debt securities:

Beginning balance

(595,147)

(14,708)

(87,390)

55,725

Other comprehensive loss

(270,937)

(18,740)

(778,694)

(89,173)

Ending balance

(866,084)

(33,448)

(866,084)

(33,448)

Adjustment of pension and postretirement

benefit plans:

Beginning balance

3,391

(270)

3,391

(270)

Other comprehensive loss

Ending balance

3,391

(270)

3,391

(270)

(1)

All amounts presented are net of tax.

NOTE 16 – EMPLOYEE BENEFIT PLANS

The Corporation

maintains two

frozen qualified

noncontributory

defined benefit

pension plans

(the “Pension

Plans”), and

a related

complementary

post-retirement

benefit

plan

(the

“Postretirement

Benefit

Plan”)

covering

medical

benefits

and

life

insurance

after

retirement that it

obtained in the BSPR

acquisition on September

1, 2020. One

defined benefit pension

plan covers substantially

all of

BSPR’s

former employees

who were

active before

January 1,

2007, while

the other

defined benefit

pension plan

covers personnel

institution

previously

acquired

BSPR.

Benefits

are

based

salary

and

years

service.

The

accrual

benefits

under

the

Pension Plans is frozen to all participants.

The

Corporation

requires

recognition

plan’s

overfunded

and

underfunded

status

asset

liability

with

offsetting

adjustment to accumulated other comprehensive loss pursuant to ASC Topic

715, “Compensation-Retirement Benefits.”

The following

table presents

the components

of net

periodic benefit

income for

the Pension

Plans and

Postretirement Benefit

Plan

for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

Location

2022

2021

2022

2021

(In thousands)

Net periodic benefit income:

Interest cost

Other expenses

656

619

1,967

1,858

Estimated return on plan assets

Other expenses

(1,040)

(1,130)

(3,119)

(3,392)

Net periodic benefit income

(384)

(511)

(1,152)

(1,534)

The Corporation does not expect to contribute to the Pension Plans during 2022.

NOTE 17 - INCOME TAXES

Income

tax

expense

includes

Puerto

Rico

and

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

The

Corporation is subject

to Puerto Rico income

tax on its income

from all sources.

As a Puerto Rico

corporation, FirstBank

is treated as

a foreign corporation for U.S. and

USVI income tax purposes and, accordingly,

is generally subject to U.S. and USVI

income tax only

on its income from

sources within the U.S.

and USVI or income

effectively connected with

the conduct of a

trade or business in those

jurisdictions. Any

such tax

paid in

the U.S.

and USVI

is also

creditable against

the Corporation’s

Puerto Rico

tax liability,

subject to

certain conditions and limitations.

Under the

Puerto Rico Internal

Revenue Code

of 2011,

as amended (the

“2011 PR

Code”), the

Corporation and

its subsidiaries are

treated

separate

taxable

entities

and

are

not

entitled

file

consolidated

tax

returns

and,

thus,

the

Corporation

generally

not

entitled to utilize

losses from one

subsidiary to offset

gains in another

subsidiary.

Accordingly,

in order to

obtain a tax

benefit from

net operating

loss (“NOL”),

a particular

subsidiary must

be able

to demonstrate

sufficient taxable

income within

the applicable

NOL

carry-forward

period.

Pursuant

the

2011

Code,

the

carry-forward

period

for

NOLs

incurred

during

taxable

years

that

commenced

after

December

31,

2004

and

ended

before

January

2013

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

taxation

Puerto

Rico

and

% on

dividends

received

from

other taxable domestic corporations.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

maximum

statutory

rate

37.5

mainly

investing

government

obligations

and

MBS

exempt

from

U.S.

and

Puerto

Rico

income

taxes

and

doing

business

through

international

banking

entity

(“an

IBE”)

unit

the

Bank,

and

through

the

Bank’s

subsidiary,

FirstBank

Overseas

Corporation,

whose

interest

income

and

gains

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

% of

the bank’s

total net

taxable

income.

For the

third quarter

of 2022,

the Corporation

recorded an

income tax

expense of

32.0

million compared

to $

37.1

million in

the

third quarter of 2021. The variance was primarily related

to lower pre-tax income and a lower estimated

effective tax rate as a result of

a higher

proportion of

exempt to

taxable income

when compared

to the

same period

in 2021.

For the

first nine

months of

2022, the

Corporation recorded

an income tax

expense of $

109.2

million compared

to $

105.2

million for the

same period in

2021. The increase

in income tax expense for the nine-month period ended

September 30, 2022, as compared to the same period a year

ago, was related to

higher pre-tax

income, partially offset

by a higher

proportion of exempt

to taxable income

resulting in a

lower estimated effective

tax

rate.

For

the

quarter

and

nine-month

period

ended

September

30,

2022,

the

Corporation

calculated

the

provision

for

income

taxes

applying

the

estimated

annual

effective

tax

rate

for

the

full

fiscal

year

ordinary

income

loss.

the

computation

the

consolidated

worldwide

annual

estimated

effective

tax

rate,

ASC

Topic

740-270,

“Income

Taxes”

(“ASC

740-270”),

requires

the

exclusion

legal

entities

with

pre-tax

losses

from

which

tax

benefit

cannot

recognized.

The

Corporation’s

estimated

annual

effective tax rate in

the first nine months of

2022, excluding entities from which

a tax benefit cannot be recognized

and discrete items,

was

31.8

%, compared

33.2

% for

the first

nine months

of 2021.

The estimated

annual effective

tax rate,

including all

entities, for

2022

was

32.0

% (

32.4

% excluding

discrete items),

compared

33.6

% for

the first

nine months

of 2021

(

33.8

% excluding

discrete

items).

The

Corporation’s

net

deferred

tax

asset

amounted

166.1

million

September

30,

2022,

net

valuation

allowance

195.8

million, and

management concluded,

based upon

the assessment

of all

positive and

negative evidence,

that it was

more likely

than not

that the Corporation

will generate suff

icient taxable income

within the applicable

NOL carry-forward

periods to realize

such

amount.

The net

deferred tax

asset of

the Corporation’s

banking subsidiary,

FirstBank, amounted

to $

166.0

million as

of September

30,

2022, net

of a

valuation

allowance of

158.7

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

as well as the

credit losses reserve

release. The increase

in the valuation allowance

during the first nine

months of 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,

thus,

the

change

the

market

value

available-for-sale

debt

securities resulted

in a

change in

the deferred

tax asset

and

an equal

change in

the valuation

allowance

without having

an effect

earnings.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

the

U.S.

Internal

Revenue Code

(“Section 382”)

covering a

comprehensive period

and concluded

that an

ownership

change had

occurred during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

than

would

have

incurred

the

absence of such limitation. The Corporation has mitigated

to an extent the adverse effects associated with the

Section 382 limitation as

any

such

tax

paid

the

U.S.

USVI

can

creditable

against

Puerto

Rico

tax

liabilities

taken

deduction

against

taxable

income. However,

our ability

to reduce

our Puerto

Rico tax

liability through

such a

credit or

deduction depends

on our

tax profile

each annual

taxable period,

which is

dependent on

various factors.

For the

third quarter

and nine-month

period ended

September 30,

2022, the Corporation

incurred current income

tax expense of

approximately $

3.0

million and $

7.1

million, respectively,

related to its

U.S. operations,

compared to

2.1

million and

4.5

million, respectively,

for the

comparable periods

in 2021.

The limitation

did not

impact the USVI operations in the third quarter and nine-month periods ended September

30, 2022 and 2021.

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

an excise tax on stock

repurchases, and a corporate

alternative minimum tax that

generally applies to

U.S.

corporations

with

average

adjusted

financial

statement

income

over

three-year

period

excess

billion.

not

currently expect

the IRA to

have a material

impact on

our financial

results, including

on our annual

estimated effective

tax rate or

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

unrecognized

tax positions

income

tax

expense.

September

30,

2022,

the

Corporation

had

0.2

million

accrued

interest

and

penalties

uncertain

tax

positions

the

amount

0.8

million

that

it acquired

from

BSPR, which,

if recognized,

would decrease

the effective

income tax

rate in

future periods.

During the

quarter ended

September 30,

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; the

statute of

limitations for

U.S. and

USVI income

tax purposes

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

limitations

for

given

audit

period

could

result in

adjustment

the Corporation’s

liability

for

income

taxes.

Any

such adjustment

could be material

to the results

of operations for

any given quarterly

or annual period

based, in part,

upon the results

operations

for

the

given

period.

For

U.S.

and

USVI

income

tax

purposes,

all

tax

years

subsequent

2018

remain

open

examination. For Puerto Rico tax purposes, all tax years subsequent to

2017 remain open to examination.

NOTE 18 – 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

liability

(an

exit

price)

the

principal

most

advantageous

market

for

the

asset

liability

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

fair value

hierarchy for

classifying assets

and

liabilities, which is based on

whether the inputs to

the valuation techniques used

to measure fair value are

observable or unobservable.

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

Level 1

Valuations

Level

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

Valuations

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

Valuations

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

fair

value

requires

significant management judgment as to the estimation.

See Note

30 -

Fair Value

included in

the 2021

Annual Report

on Form

10-K for

information regarding

valuation techniques

and

inputs used to measure financial instruments at fair value on a recurring

basis.

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

September 30, 2022 and December 31,

2021:

As of September 30, 2022

As of December 31, 2021

Fair Value Measurements Using

(In thousands)

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

Debt securities available for sale:

U.S. Treasury securities

138,258

148,486

Noncallable U.S. agencies debt securities

249,798

285,028

Callable U.S. agencies debt securities

2,086,221

1,971,954

MBS

3,185,549

6,170

(1)

3,191,719

4,037,209

7,234

(1)

4,044,443

Puerto Rico government obligations

2,193

2,850

Other investments

500

1,000

Equity securities

4,924

5,378

Derivative assets

1,212

1,505

Liabilities:

Derivative liabilities

452

1,178

(1)

Related to private label MBS.

The table below presents

a reconciliation of the

beginning and ending balances

of all assets and

liabilities measured at fair

value on

a recurring

basis using

significant unobservable

inputs (Level

3) for

the quarters

and nine-month

periods ended

September 30,

2022

and 2021:

Quarter Ended September 30,

2022

2021

Level 3 Instruments Only

Debt Securities

(In thousands)

Available For Sale

(1)

Available For Sale

(1)

Beginning balance

10,180

11,481

Total (losses) gains:

Included in other comprehensive income (unrealized)

(177)

191

Included in earnings (unrealized) (2)

Purchases

1,000

Principal repayments and amortization

(1,152)

(1,213)

Ending balance

8,863

11,468

(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.

Nine-Month Period Ended September 30,

2022

2021

Level 3 Instruments Only

Debt Securities

(In thousands)

Available For Sale

(1)

Available For Sale

(1)

Beginning balance

11,084

11,977

Total (losses) gains:

Included in other comprehensive income (unrealized)

(570)

896

Included in earnings (unrealized) (2)

435

136

Purchases

1,000

Principal repayments and amortization

(2,086)

(2,541)

Ending balance

8,863

11,468

(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.

The tables below present quantitative information for significant assets and liabilities measured

at fair value on a recurring basis

using significant unobservable inputs (Level 3) as of September 30, 2022 and December

31, 2021:

September 30, 2022

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

(Dollars in thousands)

Minimum

Maximum

Available-for-sale debt securities:

Private label MBS

6,170

Discounted cash flows

Discount rate

16.4%

Prepayment rate

1.9%

17.4%

12.6%

Projected cumulative loss rate

0.2%

17.3%

6.9%

Puerto Rico government obligations

2,193

Discounted cash flows

Discount rate

13.0%

Projected cumulative loss rate

19.0%

December 31, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

(Dollars in thousands)

Minimum

Maximum

Available-for-sale debt securities:

Private label MBS

7,234

Discounted cash flows

Discount rate

12.9%

Prepayment rate

7.6%

24.9%

15.2%

Projected cumulative loss rate

0.2%

15.7%

7.6%

Puerto Rico government obligations

2,850

Discounted cash flows

Discount rate

6.6%

8.4%

7.9%

Projected cumulative loss rate

8.6%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label

MBS: The

significant unobservable

inputs in

the valuation

include probability

of default,

the loss

severity

assumption,

and prepayment

rates. Shifts

in those

inputs would

result in different

fair value

measurements. Increases

in the probability

of default,

loss

severity

assumptions,

and

prepayment

rates

isolation

would

generally

result

adverse

effect

the

fair

value

the

instruments. The Corporation modeled meaningful and possible

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

Puerto Rico

Government Obligations:

The significant

unobservable input

used in

the fair value

measurement is

the assumed

loss rate

of the

underlying

residential

mortgage

loans that

collateralize

these obligations,

which

are guaranteed

by the

PRHFA.

A significant

increase (decrease) in

the assumed rate

would lead to

a (lower) higher

fair value estimate.

The fair value

of these bonds

was based on

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

the

debt

security.

The

Corporation

utilizes

PDs

and

LGDs that

consider,

among other

things, historical

payment performance,

loan-to-value

attributes

and

relevant current

and

forward-

looking

macroeconomic

variables,

such

regional

unemployment

rates,

the

housing

price

index

and

the

expected

recovery

PRHFA guarantee.

Under this approach, expected cash

flows (interest and principal) were discounted

at the Treasury yield

curve plus

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

Additionally,

fair value

is used

on a

nonrecurring basis

to evaluate

certain assets

in accordance

with GAAP.

As of

September 30,

2022,

the Corporation

recorded

losses or

valuation

adjustments

for

assets recognized

at fair

value

on a

non-recurring

basis and

still

held at September 30, 2022, and categorized as Level 3, as shown in

the following table:

Carrying value as of September 30, 2022

Related to losses recorded

for the Quarter Ended

September 30, 2022

Related to losses recorded

for the Nine-Month Period

Ended September 30, 2022

Losses recorded for the

Quarter Ended September

30, 2022

Losses recorded for the

Nine-Month Period Ended

September 30, 2022

(In thousands)

Loans receivable

(1)

4,207

27,531

(227)

(2,978)

OREO

(2)

1,234

2,913

(57)

(34)

Loans held for sale

12,169

(177)

Premises and equipment (3)

1,242

(218)

(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.

As of September 30, 2021, the Corporation recorded losses or valuation adjustments

for assets recognized at fair value on a non-

recurring basis and still held as of September 30, 2021 as shown in the following

table:

Carrying value as of September 30, 2021

Related to losses recorded

for the Quarter Ended

September 30, 2021

Related to losses recorded

for the Nine-Month Period

Ended September 30, 2021

Losses recorded for the

Quarter Ended September

30, 2021

Losses recorded for the

Nine-Month Period Ended

September 30, 2021

(In thousands)

Loans receivable

(1)

25,240

37,154

(1,612)

(5,285)

OREO

(2)

5,631

8,370

(53)

(210)

(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.

See Note

30 -

Fair Value

included

in the

2021 Annual

Report on

Form 10-K

for qualitative

information

regarding the

fair value

measurements for Level 3 financial instruments.

Fair Value

of Financial Instruments

The

following

tables

present

the

carrying

value,

estimated

fair

value

and

estimated

fair value

level

the

hierarchy

financial

instruments as of September 30, 2022 and December 31, 2021:

Total Carrying

Amount in

Statement of

Financial

Condition as of

September 30,

2022

Fair Value

Estimate as of

September 30,

2022

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money

market investments (amortized cost)

554,990

Debt securities available

for sale (fair value)

5,668,689

138,258

5,521,568

8,863

Debt securities held to maturity (amortized

cost)

445,862

Less: allowance for credit losses on

held-to-maturity debt securities

(8,257)

Debt securities held to maturity, net of allowance

437,605

429,530

268,552

160,978

Equity securities (amortized cost)

19,803

(1)

Other equity securities (fair value)

4,924

Loans held for sale (lower of cost or market)

12,169

Loans held for investment (amortized cost)

11,298,618

Less: allowance for credit losses for loans

and finance leases

(257,859)

Loans held for investment, net of allowance

11,040,759

10,986,720

MSRs (amortized cost)

29,690

44,621

Derivative assets (fair value)

(2)

1,212

Liabilities:

Deposits

(amortized cost)

16,569,581

16,553,140

Securities sold under agreements

to repurchase (amortized cost)

200,000

202,510

Other borrowings (amortized cost)

183,762

181,761

Derivative liabilities (fair value)

(2)

452

(1)

Includes FHLB stock with a carrying value of $

12.3

million.

(2)

Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

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

Debt securities available

for sale (fair value)

6,453,761

148,486

6,294,191

11,084

Debt securities held to maturity (amortized

cost)

178,133

Less: allowance for credit losses on

held-to-maturity debt securities

(8,571)

Debt securities held to maturity, net of allowance

169,562

167,147

Equity securities (amortized cost)

26,791

(1)

Other equity securities (fair value)

5,378

Loans held for sale (lower of cost or market)

35,155

36,147

Loans held for investment (amortized cost)

11,060,658

Less: allowance for credit losses for loans

and finance leases

(269,030)

Loans held for investment, net of allowance

10,791,628

10,900,400

MSRs (amortized cost)

30,986

42,132

Derivative assets (fair value)

(2)

1,505

Liabilities:

Deposits (amortized cost)

17,784,894

17,800,706

Securities sold under

agreements to repurchase (amortized cost)

300,000

322,105

Advances from FHLB (amortized cost)

200,000

202,044

Other borrowings (amortized cost)

183,762

177,689

Derivative liabilities (fair value)

(2)

1,178

(1)

Includes FHLB stock with a carrying value of $

21.5

million.

(2)

Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

The short-term nature

of certain assets and

liabilities result in their

carrying value approximating

fair value. These include

cash and

cash

due

from

banks

and

other

short-term

assets,

such

FHLB

stock.

Certain

assets,

the

most

significant

being

premises

and

equipment,

goodwill

and

other

intangible

assets, are

not

considered

financial

instruments

and

are

not

included

above. Accordingly,

this fair

value

information

is not

intended

to, and

does not,

represent

the Corporation’s

underlying

value.

Many of

these assets

and

liabilities that

are subject

to the

disclosure requirements

are not

actively traded,

requiring management

to estimate

fair values.

These

estimates

necessarily

involve

the

use

assumptions

and

judgment

about

wide

variety

factors,

including

but

not

limited

to,

relevancy of market prices of comparable instruments, expected futures

cash flows, and appropriate discount rates.

NOTE 19 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with

ASC Topic

606, “Revenue from

Contracts with Customers” (“ASC

Topic

606”), revenues are

recognized when

control

promised

goods

services

transferred

customers

and

amount

that

reflects

the

consideration

which

the

Corporation expects to be

entitled in exchange for those

goods or services. At contract

inception, once the contract is

determined to be

within the

scope of

ASC Topic

606, the

Corporation assesses

the goods

or services

that are

promised within

each contract,

identifies

the

respective

performance

obligations,

and

assesses

whether

each

promised

good

service

distinct.

The

Corporation

then

recognizes

as revenue

the amount

of the

transaction price

that is

allocated to

the respective

performance obligation

when (or

as) the

performance obligation is satisfied.

Disaggregation of Revenue

The following

table summarizes

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 quarters

and nine-month

periods ended

September 30,

2022 and 2021:

(In thousands)

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

Quarter Ended September 30, 2022:

Net interest income

(1)

24,338

118,408

22,861

14,827

21,494

5,982

207,910

Service charges and fees on deposit accounts

5,744

3,169

151

756

9,820

Insurance commissions

(2)

2,485

123

2,624

Merchant-related income

1,458

347

330

2,167

Credit and debit card fees

7,209

(2)

439

7,667

Other service charges and fees

1,228

340

595

195

2,443

Not in scope of ASC Topic 606

(1)

3,648

997

399

(19)

(86)

4,972

Total non-interest income

3,733

19,121

4,276

773

1,757

29,693

Total Revenue

28,071

137,529

27,137

14,860

22,267

7,739

237,603

(In thousands)

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

Quarter Ended September 30, 2021:

Net interest income

(1)

26,535

75,343

46,358

12,756

17,255

6,496

184,743

Service charges and fees on deposit accounts

5,076

2,855

128

631

8,690

Insurance commissions

(2)

2,183

109

2,317

Merchant-related income

1,878

263

266

2,421

Credit and debit card fees

6,897

394

7,313

Other service charges and fees

211

1,018

715

462

150

2,556

Not in scope of ASC Topic 606

(1)

5,710

492

336

6,649

Total non-interest income

5,921

17,544

3,894

965

1,561

29,946

Total Revenue

32,456

92,887

50,252

12,817

18,220

8,057

214,689

(In thousands)

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

Nine-Month Period Ended September 30, 2022:

Net interest income

(1)

76,452

310,351

94,655

33,702

56,664

17,896

589,720

Service charges and fees on deposit accounts

16,778

9,214

446

2,211

28,649

Insurance commissions

(2)

10,176

604

10,845

Merchant-related income

4,991

1,101

1,046

7,192

Credit and debit card fees

21,271

(6)

1,298

22,621

Other service charges and fees

287

4,404

2,329

1,579

509

9,108

Not in scope of ASC Topic 606

(1)

12,865

1,747

576

(130)

(38)

15,077

Total non-interest income

13,152

59,367

13,278

(130)

2,195

5,630

93,492

Total Revenue

89,604

369,718

107,933

33,572

58,859

23,526

683,212

(In thousands)

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

Nine-Month Period Ended September 30, 2021:

Net interest income

(1)

78,106

198,577

146,837

53,378

48,684

20,209

545,791

Service charges and fees on deposit accounts

14,518

8,813

412

2,039

25,782

Insurance commissions

(2)

9,137

555

9,774

Merchant-related income

4,710

776

752

6,277

Credit and debit card fees

19,163

1,168

20,407

Other service charges and fees

561

2,729

1,927

1,351

438

7,006

Not in scope of ASC Topic 606

(1)

18,613

1,256

352

202

1,110

21,540

Total non-interest income

19,174

51,513

11,930

202

3,008

4,959

90,786

Total Revenue

97,280

250,090

158,767

53,580

51,692

25,168

636,577

(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)

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. For the nine-month period ended September 30, 2022, the Corporation recognized revenue at the time that payments were confirmed and constraints were released of $

3.2

million, compared to $

3.3

million

for the nine-month period ended September 30, 2021.

revenue was recognized during the quarters ended September 30, 2022 and 2021.

For the nine-month periods

ended September 30, 2022 and

2021, most of the Corporation’s

revenue within the scope

of ASC Topic

606 was related to performance obligations satisfied at a point in time.

See

Note

–

Revenue

from

Contracts

with

Customers

included

the

2021

Annual

Report

Form

10-K

for

discussion

major revenue streams under the scope of ASC Topic

606.

Contract Balances

As of September

30, 2022 and 2021,

there were

contract assets from

contracts with customers

or contract assets

recorded on the

Corporation’s consolidated

financial statements.

The following table shows

the activity of contract

liabilities for the quarters

and nine-month periods

ended

September 30, 2022 and

2021:

Quarter Ended

Nine-Month Period Ended

September 30,

(In thousands)

2022

2021

2022

2021

Beginning Balance

1,049

1,989

1,443

2,151

Less:

Revenue recognized

(104)

(433)

(498)

(595)

Ending balance

945

1,556

945

1,556

Other

Except

for

the

contract

liabilities

noted

above,

the

Corporation

did

not

have

any

significant

performance

obligations

September

30,

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.

NOTE 20 –

SUPPLEMENTAL STATEMENT OF

CASH FLOWS

INFORMATION

Supplemental

cash flow

information

is as follows

for the

indicated

periods:

Nine-Month Period Ended September 30,

2022

2021

(In thousands)

Cash paid for:

Interest on borrowings

41,205

53,659

Income tax

22,943

13,448

Operating cash flow from operating leases

13,759

14,655

Non-cash investing and financing activities:

Additions to OREO

13,653

14,748

Additions to auto and other repossessed assets

33,119

25,647

Capitalization of servicing assets

2,637

4,046

Loan securitizations

113,757

148,223

Loans held for investment transferred to held for sale

3,893

32,858

Right-of-use ("ROU") assets obtained in exchange for operating lease

liabilities

2,297

5,518

Unsettled purchases of investment securities

46,720

Unsettled common stock shares repurchases

467

517

NOTE 21 –

SEGMENT

INFORMATION

Based upon

the Corporation’s

organizational

structure and

the information

provided to

the Chief

Executive

Officer,

the operating

segments

are

based

primarily

the

Corporation’s

lines

business

for

its

operations

Puerto

Rico,

the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

September

30,

2022,

the

Corporation

had

six

reportable segments: Commercial and

Corporate Banking; Mortgage Banking;

Consumer (Retail) Banking; Treasury

and Investments;

United

States

Operations;

and

Virgin

Islands

Operations.

Management

determined

the

reportable

segments

based

the

internal

structure

used

evaluate

performance

and

assess

where

allocate

resources.

Other

factors,

such

the

Corporation’s

organizational

chart,

nature

the

products,

distribution

channels,

and

the

economic

characteristics

the

products,

were

also

considered in the determination of the reportable segments.

The

Commercial

and

Corporate

Banking

segment

consists

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

cash

management

and

business

management

services.

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage

Banking

segment

also

acquires

and

sells

mortgages

the

secondary

markets.

addition,

the

Mortgage

Banking

segment

includes

mortgage

loans

purchased

from

other

local

banks

and

mortgage

bankers.

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities conducted mainly

through its branch network

and loan centers. The

Treasury and Investments

segment is responsible

for the

Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

manage

and

enhance

liquidity.

This

segment

lends

funds

the

Commercial

and

Corporate

Banking,

Mortgage

Banking,

Consumer

(Retail)

Banking

and

United

States

Operations

segments

finance

their

lending

activities

and

borrows

from

those

segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

Treasury

and Investments

and the

Consumer (Retail)

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

interest income

or expense

and the Corporation’s

actual

net

interest income

from

centralized

management

of funding

costs is

reported

in the

Treasury

and Investments

segment.

The

United States

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

United States

mainland,

including

commercial and consumer banking

services. The Virgin

Islands Operations segment consists of all

banking activities conducted by the

Corporation in the USVI and BVI, including commercial and consumer

banking services.

The

accounting

policies

the

segments

are

the

same

those

referred

Note

–

Nature

Business

and

Summary

Significant

Accounting

Policies,

the audited

consolidated

financial

statements,

which are

included

the 2021

Annual Report

Form 10-K.

The

Corporation

evaluates

the

performance

the

segments

based

net

interest

income,

the

provision

for

credit

losses,

non-

interest

income

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

the

average

volume

their

interest-

earning assets less the ACL.

The following tables present information about the reportable segments for

the indicated periods:

(In thousands)

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

For the Quarter Ended September 30, 2022:

Interest income

32,349

77,576

53,506

28,203

24,804

6,245

222,683

Net (charge) credit for transfer of funds

(8,011)

47,577

(30,645)

(8,447)

(474)

Interest expense

(6,745)

(4,929)

(2,836)

(263)

(14,773)

Net interest income

24,338

118,408

22,861

14,827

21,494

5,982

207,910

Provision for credit losses - expense (benefit)

2,092

16,705

(3,519)

(12)

(624)

1,141

15,783

Non-interest income (loss)

3,733

19,121

4,276

773

1,757

29,693

Direct non-interest expenses

6,489

42,080

9,295

942

8,479

7,097

74,382

Segment income (loss)

19,490

78,744

21,361

13,930

14,412

(499)

147,438

Average earnings assets

2,211,675

2,974,894

3,622,907

7,095,503

2,040,656

365,743

18,311,378

(In thousands)

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

For the Quarter Ended September 30, 2021:

Interest income

35,722

68,883

48,558

19,342

20,847

6,820

200,172

Net (charge) credit for transfer of funds

(9,187)

13,094

(2,200)

(909)

(798)

Interest expense

(6,634)

(5,677)

(2,794)

(324)

(15,429)

Net interest income

26,535

75,343

46,358

12,756

17,255

6,496

184,743

Provision for credit losses expense - (benefit) expense

(10,210)

6,532

(8,332)

(9)

(1,158)

1,095

(12,082)

Non-interest income

5,921

17,544

3,894

965

1,561

29,946

Direct non-interest expenses

6,792

40,130

7,916

803

8,343

7,120

71,104

Segment income (loss)

35,874

46,225

50,668

12,023

11,035

(158)

155,667

Average earnings assets

2,446,111

2,590,938

3,655,172

8,751,623

2,177,681

425,872

20,047,397

(In thousands)

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

Nine-Month Period Ended September 30, 2022

Interest income

98,625

221,500

148,046

77,530

64,742

18,719

629,162

Net (charge) credit for transfer of funds

(22,173)

105,898

(53,391)

(29,101)

(1,233)

Interest expense

(17,047)

(14,727)

(6,845)

(823)

(39,442)

Net interest income

76,452

310,351

94,655

33,702

56,664

17,896

589,720

Provision for credit losses - (benefit) expense

(5,216)

42,904

(20,611)

(435)

(5,849)

1,191

11,984

Non-interest income (loss)

13,152

59,367

13,278

(130)

2,195

5,630

93,492

Direct non-interest expenses

19,076

121,897

27,202

2,732

25,195

20,835

216,937

Segment income

75,744

204,917

101,342

31,275

39,513

1,500

454,291

Average earnings assets

2,249,203

2,865,610

3,654,906

7,642,121

2,047,375

371,468

18,830,683

(In thousands)

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

Nine-Month Period Ended September 30, 2021

Interest income

109,727

200,853

153,849

48,812

61,830

21,202

596,273

Net (charge) credit for transfer of funds

(31,621)

20,050

(7,012)

22,216

(3,633)

Interest expense

(22,326)

(17,650)

(9,513)

(993)

(50,482)

Net interest income

78,106

198,577

146,837

53,378

48,684

20,209

545,791

Provision for credit losses - (benefit) expense

(9,966)

11,285

(53,263)

(136)

(535)

(874)

(53,489)

Non-interest income

19,174

51,513

11,930

202

3,008

4,959

90,786

Direct non-interest expenses

22,314

124,476

27,752

3,164

25,740

21,826

225,272

Segment income

84,932

114,329

184,278

50,552

26,487

4,216

464,794

Average earnings assets

2,555,476

2,508,777

3,855,854

7,535,752

2,120,144

438,024

19,014,027

The

following

table

presents

reconciliation

the

reportable

segment

financial

information

the

consolidated

totals

for

the

indicated periods:

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Net income:

Total income

for segments

147,438

155,667

454,291

464,794

Other operating expenses (1)

40,807

42,932

113,237

152,237

Income before income taxes

106,631

112,735

341,054

312,557

Income tax expense

32,028

37,057

109,156

105,171

Total consolidated

net income

74,603

75,678

231,898

207,386

Average assets:

Total average

earning assets for segments

18,311,378

20,047,397

18,830,683

19,014,027

Average non-earning

assets

835,740

1,024,385

873,911

1,105,223

Total consolidated

average assets

19,147,118

21,071,782

19,704,594

20,119,250

(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.

NOTE 22 –

REGULATORY MATTERS, COMMITMENTS

AND CONTINGENCIES

The

Corporation

and

FirstBank

are

each

subject

various

regulatory

capital

requirements

imposed

the

U.S.

federal

banking

agencies. Failure

to meet

minimum capital

requirements can

result in

certain mandatory

and possibly

additional discretionary

actions

by regulators

that, if

undertaken, could

have a

direct material

adverse effect

on the

Corporation’s

financial statements

and activities.

Under

capital

adequacy

guidelines

and

the

regulatory

framework

for

prompt

corrective

action,

the

Corporation

must

meet

specific

capital

guidelines

that

involve

quantitative

measures

the Corporation’s

and

FirstBank’s

assets,

liabilities,

and

certain

off-balance

sheet items

as calculated

under regulatory

accounting practices.

The Corporation’s

capital amounts

and classification

are also

subject

to qualitative judgments and

adjustment by the regulators with respect

to minimum capital requirements, components,

risk weightings,

and

other

factors.

September

30,

2022

and

December

31,

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

well

capitalized

institution

under

the regulatory

framework

for

prompt

corrective

action.

As of

September

30,

2022,

management

does not believe that any condition has changed or event has occurred that would

have changed the institution’s status.

The Corporation and FirstBank

compute risk-weighted assets

using the standardized approach

required by the U.S.

Basel III capital

rules (“Basel III rules”).

The

Basel

III

rules

require

the

Corporation

maintain

additional

capital

conservation

buffer

2.5

certain

regulatory

capital

ratios

avoid

limitations

both

(i)

capital

distributions

(

e.g.

repurchases

capital

instruments,

dividends

and

interest

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

to executive officers and heads of major business lines.

As part

of its

response to

the impact

of COVID-19,

on March

31, 2020,

the federal

banking agencies

issued an

interim final

rule

that

provided

the

option

temporarily

delay

the

effects

CECL

regulatory

capital

for

two

years,

followed

three-year

transition period.

The interim final

rule provides

that, at the

election of

a qualified

banking organization,

the day 1

impact to retained

earnings plus

% of the change

in the ACL (as

defined in the final

rule) from January

1, 2020 to December

31, 2021 will be

delayed

for

two

years

and

phased-in

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition

period

five

years.

Accordingly,

September

30,

2022,

the

capital

measures

the

Corporation

and

the

Bank

included

16.2

million associated

with the CECL

day one impact

to retained earnings

plus

% of the

increase in the

ACL (as defined

in the interim

final rule) from January 1,

2020 to December 31, 2021, and

48.6

million remains excluded to be phased-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.

The regulatory

capital positions of

the Corporation

and FirstBank as

of September

30, 2022 and

December 31, 2021,

which reflect

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 September 30, 2022

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,364,266

19.38

976,183

8.0

N/A

FirstBank

2,326,477

19.07

975,810

8.0

1,219,762

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,033,421

16.66

549,103

4.5

N/A

FirstBank

2,073,940

17.00

548,893

4.5

792,845

6.5

Tier I Capital (to Risk-Weighted Assets)

First BanCorp.

2,033,421

16.66

732,137

6.0

N/A

FirstBank

2,173,940

17.82

731,857

6.0

975,810

8.0

Leverage ratio

First BanCorp.

2,033,421

10.36

785,379

4.0

N/A

FirstBank

2,173,940

11.08

785,053

4.0

981,316

5.0

As of December 31, 2021

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,433,953

20.50

949,637

8.0

N/A

FirstBank

2,401,390

20.23

949,556

8.0

1,186,944

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,112,630

17.80

534,171

4.5

N/A

FirstBank

2,150,317

18.12

534,125

4.5

771,514

6.5

Tier I Capital (to Risk-Weighted Assets)

First BanCorp.

2,112,630

17.80

712,228

6.0

N/A

FirstBank

2,258,317

19.03

712,167

6.0

949,556

8.0

Leverage ratio

First BanCorp.

2,112,630

10.14

833,091

4.0

N/A

FirstBank

2,258,317

10.85

832,773

4.0

1,040,967

5.0

The Corporation enters

into financial instruments

with off-balance sheet

risk in the normal

course of business to

meet the financing

needs

its

customers.

These

financial

instruments

may

include

commitments

extend

credit

and

standby

letters

credits.

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

the

commercial

lines

credit,

the

Corporation

has

the

option

reevaluate

the

agreement

prior

additional

disbursements.

the

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

cancel the unused credit facility at any time and without cause. As

of September

30, 2022,

commitments to

extend credit

amounted to

approximately $

1.9

billion, of

which $

1.0

billion relates

to credit

card loans. Commercial and financial standby letters of credit amounted

to approximately $

94.0

million.

As of September

30, 2022, First

BanCorp. and

its subsidiaries were

defendants in

various legal proceed

ings, claims, and

other loss

contingencies

arising

the

ordinary

course

business.

least

quarterly

basis,

the

Corporation

assesses

its

liabilities

and

contingencies in connection with

threatened and outstanding legal

proceedings, claims, and other

loss contingencies utilizing the

latest

information available.

For legal

proceedings, claims,

and other

loss contingencies

where it

is both

probable that

the Corporation

will

incur

loss

and

the

amount

can

reasonably

estimated,

the

Corporation

establishes

accrual

for

the

loss.

Once

established,

the

accrual

adjusted

appropriate

reflect

any

relevant

developments.

For

legal

proceedings,

claims,

and

other

loss

contingencies

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

is established.

Any estimate

involves significant

judgment, given

the varying

stages of

the proceedings

(including the

fact that

some of

them are

currently in

preliminary stages),

the existence

in some

of the

current proceedings

of multiple

defendants whose

share of

liability has

yet

determined,

the

numerous

unresolved

issues

the

proceedings,

and

the

inherent

uncertainty

the

various

potential

outcomes of such proceedings.

Accordingly,

the Corporation’s

estimate will change from

time-to-time, and actual

losses may be more

or less than the current estimate.

While

the

final

outcome

legal

proceedings,

claims,

and

other

loss

contingencies

inherently

uncertain,

based

information

currently

available,

management

believes

that

the

final

disposition

the

Corporation’s

legal

proceedings,

claims,

and

other

loss

contingencies,

the

extent

not

previously

provided

for,

will

not

have

material

adverse

effect

the

Corporation’s

consolidated

financial position as a whole.

If management believes that, based on available information,

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

loss in

excess

any

accrual)

will

incurred

connection

with

any

legal

contingencies,

the

Corporation

discloses

estimate

the

possible loss or

range of loss,

either individually or

in the aggregate,

as appropriate, if

such an estimate can

be made, or discloses

that

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

assessment as of September 30, 2022, no such disclosures were necessary.

NOTE 23 –

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

September

30, 2022 and

December 31,

2021, and the

results of

its operations

for the quarters

and nine-month

periods ended

September

30,

2022 and

2021:

Statements of Financial Condition

(Unaudited)

As of September 30,

As of December 31,

2022

2021

(In thousands)

Assets

Cash and due from banks

18,298

20,751

Other investment securities

735

285

Investment in First Bank Puerto Rico, at equity

1,408,435

2,247,289

Investment in First Bank Insurance Agency,

at equity

24,501

19,521

Investment in FBP Statutory Trust I

1,951

Investment in FBP Statutory Trust II

3,561

Dividend receivable

523

295

Other assets

155

Total assets

1,458,159

2,293,724

Liabilities and Stockholdersʼ Equity

Liabilities:

Other borrowings

183,762

Accounts payable and other liabilities

9,064

8,195

Total liabilities

192,826

191,957

Stockholdersʼ equity

1,265,333

2,101,767

Total liabilities and stockholdersʼ

equity

1,458,159

2,293,724

Statements of Income

(Unaudited)

Quarter Ended September

30,

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(In thousands)

Income:

Interest income on money market investments

Dividend income from banking subsidiaries

49,728

15,555

292,000

50,684

Dividend income from non-banking subsidiaries

30,000

Other income

159

116

Total income

49,815

45,607

292,192

80,837

Expense:

Other borrowings

2,273

1,277

5,304

3,856

Other operating expenses

422

358

1,295

1,494

Total expenses

2,695

1,635

6,599

5,350

Income before income taxes and equity in undistributed

earnings of subsidiaries

47,120

43,972

285,593

75,487

Income tax expense

735

556

2,634

2,344

Equity in undistributed earnings of subsidiaries

(distributions in excess of earnings)

28,218

32,262

(51,061)

134,243

Net income

74,603

75,678

231,898

207,386

Other comprehensive loss, net of tax

(270,937)

(18,740)

(778,694)

(89,173)

Comprehensive (loss) income

(196,334)

56,938

(546,796)

118,213

ITEM 2. MANAGEMENT’S

DISCUSSION

AND ANALYSIS OF

FINANCIAL

CONDITION

AND RESULTS OF

OPERATIONS (“MD&A”)

The

following

MD&A

relates

the

accompanying

unaudited

consolidated

financial

statements

First

BanCorp.

(the

“Corporation,” “we,” “us,”

“our,” or “First

BanCorp.”) and should be

read in conjunction with

such financial statements and

the notes

thereto and our

Annual Report on

Form 10-K for the

year ended December

31, 2021 (the “2021

Annual Report on

Form 10-K”). This

section

also

presents

certain

financial

measures

that

are

not

based

generally

accepted

accounting

principles

the United

States

(“GAAP”).

See

“Special

Items”

and

“Basis

Presentation”

below

for

information

about

why

non-GAAP

financial

measures

are

presented

and

the

reconciliation

of non

-GAAP

financial

measures

the

most

comparable

GAAP

financial

measures

for

which

the

reconciliation is not presented earlier.

EXECUTIVE SUMMARY

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

State

Florida,

concentrating on

commercial banking, residential

mortgage loans, finance

leases, credit cards,

personal loans, small

loans, auto loans,

and insurance agency activities.

Recent Developments

Natural Disaster Affecting First BanCorp. In the Third

Quarter Of 2022

September

17,

2022,

Hurricane

Fiona

made

landfall

the

southwestern

part

Puerto

Rico

Category

storm.

The

hurricane principally caused major flooding, property damage, power

outages and water service interruptions.

Disaster Response Plan

The Bank was able to

resume operations the day

after Hurricane Fiona made

landfall in Puerto Rico,

and two days after the

passing

of the

hurricane, the

Bank had

already reopened

approximately 75%

of its

branches while

headquarters and

main buildings

remained

fully operational

throughout the events.

By September 28,

2022, 98% of

its branches had

resumed operations.

Only one branch

in the

southern part of Puerto Rico, which was a leased premise, suffered

major damages and is expected to reopen in 2023.

In response

to this

event, the

Corporation established

a Natural

Disaster Deferral

or Extension

Program, with

a term

not to

extend

beyond

December

31,

2022,

for

residents

Puerto

Rico

that

were

directly

impacted

the

passing

the

hurricane

and

whose

accounts were no

more than 60 days

past due. This

program provides payment

deferral or term

extension on a

one payment basis,

not

exceed

three

payments,

retail

borrowers

(i.e.

borrowers

with

personal

loans,

auto

loans,

finance

leases,

credit

cards

and

residential

mortgage

loans)

that

contacted

the

Corporation

October

31,

2022

request

the

payment

extension

(for

additional

information about

this program, refer

to “Financial Condition

and Operating Data

Analysis – Early

Delinquency”). As of

October 31,

2022,

the

Corporation

has

entered

into

deferral

extension

payment

agreements

3,366

retail

loans

totaling

$63.6

million. In

addition,

the

Corporation

waived

any

late charges

assessed

as a

result

of the

delinquency

caused

by the

hurricane

for

all borrowers

affected

Hurricane

Fiona

from

September

16th

September

30th.

also

waived

withdrawal

fees

assessed

its

customers

automatic teller

machines (“ATMs

”) outside

its network

and ATM

withdrawal fees

for customers

of other

banking institutions

from

September 22

to September 30th.

addition,

the

Corporation

established

the

following

disaster

relief

efforts

provide

assistance

the

communities

and

clients

affected by Hurricane Fiona:

●

Donations of $0.3 million to non-profit organizations

in the municipalities most affected by the Hurricane

●

Collection of essential supplies and monetary donations

FDIC Final Rule to Increase Deposit Insurance

Assessment Rate

On October

18, 2022,

the Federal

Deposit Insurance

Corporation (“FDIC”)

adopted a

final rule

to increase

the initial

base deposit

insurance

assessment

rate

schedules

uniformly

basis

points

beginning

the

first

quarterly

assessment

period

2023.

The

Corporation is awaiting final regulatory instructions to finalize the estimate.

Stock Repurchase Program

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,

expected to

be executed

over four

quarters, which

commenced

the

second

quarter

2022.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases,

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with

Rule

10b5-1

under the Exchange Act.

The Corporation’s

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 stock

repurchase program

may be modified,

extended, suspended,

or terminated

at any time

at the Corporation’s

discretion.

As of

October

31,

2022,

the

Corporation

has

repurchased

approximately

14.1

million

common

stock

for

total

purchase

price

$200

million under

the $350 million

stock repurchased

program. For the

nine-month period

ended September 30,

2022, First BanCorp.

has

repurchased approximately 15.9 million shares for a total purchase price

of $225.0 million under all stock repurchase programs.

LIBOR Transition

In March

2021, the

United Kingdom’s

Financial

Conduct Authority

(the “FCA”)

confirmed that

publication

of the

overnight and

one-month,

three-month, six-month

and twelve-month

U.S. Dollar

LIBOR settings

will cease

or become

no longer

representative of

the

market

the

rates

seek

measure

(i.e.,

non-representative)

immediately

after

June

30,

2023,

and

all

other

U.S.

Dollar

LIBOR

settings, including the one week and two-month U.S.

Dollar LIBOR settings, became non-representative after December 31,

2021. See

“Executive

Summary

—

Recent

Developments

—

LIBOR

Transition”

the

MD&A

the

Corporation’s

2021

Annual

Report

Form 10-K for additional information.

On March 15, 2022, President Biden

signed the Adjustable Interest Rate Act (the

“LIBOR Act”) into law.

The LIBOR Act provides

a nationwide framework

for transitioning legacy

contracts that either lack

or contain insufficient

contractual provisions

addressing the

permanent cessation

of LIBOR to

a benchmark interest

rate. Under the

LIBOR Act, references

to the most

common tenors of

LIBOR

(overnight,

one-month,

three-month,

six-month,

and

twelve-month

tenors)

these

contracts

will

replaced

matter

law,

without

the

need

to be

amended,

replacement

benchmark

interest

rate.

Any

Federal

Reserve-identified

replacement

benchmark

interest rate will be based

on the SOFR and will

include an appropriate “tenor

spread adjustment” to reflect historical

spreads between

LIBOR

and

SOFR.

The

statute

also

provides

“safe

harbor,”

under

which

party

that

has

discretion

select

replacement

for

LIBOR may choose

to adopt

the replacement

benchmark identified

by the Federal

Reserve. The

LIBOR Act preempts

state and

local

laws

(including

any

territory

possession)

that

limit

the

manner

interest

calculated

with

respect

the

replacement

benchmark

interest rate.

September

30,

2022,

the

Corporation’s

LIBOR

exposure

consisted

the

following:

(i)

$1.7

billion

variable

rate

commercial

and

construction

loans

(including

unused

commitments),

(ii)

$46.6

million

U.S.

agencies

debt

securities

and

private

label MBS held as

part of the

available-for-sale debt securities

portfolio, (iii) $124.1

million of Puerto

Rico municipalities bonds

held

as part

of the held-to-maturity

debt securities

portfolio, and

(iv) $183.8

million of

junior subordinated

debentures (other

borrowings).

the

Corporation’s

total

LIBOR

exposure

September

30,

2022,

approximately

$359.4

million

does

not

contain

fallback

language

and

mostly

comprised

$124.1

million

Puerto

Rico

municipalities

bonds

held

part

the

held-to-maturity

debt

securities portfolio

and $183.8

million of

other borrowings.

The Corporation

expects to

follow the

provisions of

the LIBOR

Act for

the transition of any residual exposure after June 30, 2023.

The Corporation

continues to

execute its

LIBOR transition

workplan. Effective

December 31,

2021, the

Corporation discontinued

originations

that

use

U.S.

Dollar

LIBOR

reference

rate.

addition,

the

Corporation

continues

working

with

the

update

systems, processes, documentation, and models, with additional updates expected

through 2023.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The

accounting

principles

the

Corporation

and

the

methods

applying

these

principles

conform

GAAP.

preparing

the

consolidated

financial

statements,

management

required

make

estimates,

assumptions,

and

judgments

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

expenses during

the reporting

periods.

Except

for the

change

in accounting

method for

accounting of

treasury stock

from a

par

value

cost

method

described

Note

Basis

Presentation

and

Significant

Accounting

Policies

the

accompanying

financial statements, the

Corporation’s

significant accounting

policies are

described in

Note 1

– Nature

of Business

and Summary

Significant Accounting Policies to the consolidated financial statements included

in the 2021 Annual Report on Form 10-K.

Not all significant

accounting policies require

management to make

difficult, subjective

or complex judgments.

The Corporation’s

critical accounting

estimates that

are particularly

susceptible

to significant

changes include,

but are

not limited

to, the

following:

(i)

the allowance

for credit

losses (“ACL”);

(ii) valuation

of financial

instruments; (iii)

acquired loans;

and (iv)

income taxes.

For more

information,

see

“Critical

Accounting

Policies

and

Practices”

the

MD&A

the

2021

Annual

Report

Form

10-K

and

“Risk

Management - Credit Risk

Management” below for

information on the ACL estimation

methodology.

Actual results could differ

from

estimates and assumptions if different outcomes or conditions prevail.

Overview of Results of Operations

First

BanCorp.'s

results

operations

depend

primarily

its

net

interest

income,

which

the

difference

between

the

interest

income

earned

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

affected

various

factors,

including

the

following:

the interest

rate environment;

the volumes,

mix and

composition of

interest-earning

assets and

interest-bearing

liabilities;

and the re-pricing characteristics of these assets and liabilities. The

Corporation's results of operations also depend on the provision

for

credit

losses,

non-interest

expenses

(such

personnel,

occupancy,

the

deposit

insurance

premium

and

other

costs),

non-interest

income (mainly

service charges

and fees on

deposits, and

insurance income),

gains (losses) on

sales of investments,

gains (losses)

mortgage banking activities, and income taxes.

The Corporation

had net

income of

$74.6 million,

or $0.40

per diluted

common share,

for the

quarter ended

September 30,

2022,

compared

$75.7

million,

$0.36

per

diluted

common

share,

for

the

same

period

2021.

Other

relevant

selected

financial

indicators for the periods presented is included below:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2022

2021

2022

2021

Key Performance Indicators:

(1)

Return on Average

Assets

(2)

1.55

1.42

1.57

1.38

Return on Average

Total Equity

(3)

19.00

13.43

17.73

12.28

Efficiency Ratio

(4)

48.48

53.12

48.33

59.30

(1)

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

financial performance and whether it is using its assets

efficiently.

(2)

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

and is calculated by dividing net income on an annualized basis

by its average total assets.

(3)

Measures the Corporation’s performance

based on its average stockholders’ equity and is calculated

by dividing net income on an annualized basis by its average

total stockholders’

equity.

(4)

Measures how much the Corporation incurred to generate a

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

by total revenue.

The

key

drivers

the

Corporation’s

GAAP

financial

results

for

the

quarter

ended

September

30,

2022,

compared

the

same

period in 2021, include the following:

●

Net

interest income for

the quarter

ended September 30,

2022 was

$207.9 million,

compared to

$184.7 million

for

the

third

quarter of

2021. The

increase

was mainly

driven by

the positive

impact of

upward repricing

of variable-rate

commercial

loans and

interest-bearing

cash balances

maintained

at the FED, growth

in the consumer

loans and finance

leases portfolio

and a lower U.S.

agencies MBS premium amortization

expense, partially

offset by lower interest and realized deferred fees from SBA PPP loans

and higher

cost of

funds.

The net

interest margin

increased by

71 basis

points to

4.31%

for the

third quarter

of 2022,

compared

to 3.60%

for the third

quarter

2021.

The

increase

was

primarily

attributable

the

aforementioned

higher

interest

rate

environment

driving

increase

loans

and

investment

securities

yields,

as well

as a

decrease

long-term

debt

and

changes

in the

overall

asset

mix. See “Net Interest Income” below for additional information.

●

The provision for credit losses on loans, finance leases, unfunded loan commitments

and debt securities for the third

quarter of

2022 was an

expense of

$15.8 million,

compared

to a net

benefit of

$12.1 million

for the third

quarter of

2021. The

increase

in the

overall provision was driven in part by the increase in

the provision for the consumer loans

and finance leases portfolio for the

third quarter of 2022 which reflects

an overall increase in the size of this portfolio,

an increase in charge-off levels associated

the overall

portfolio

growth,

and a deterioration

in the long-term

outlook

of certain

macroeconomic

variables.

Net

charge-offs

totaled

$8.6

million

for

the

third

quarter

2022,

0.31%

average

loans

annualized

basis,

compared to $27.9

million, or 0.99%

of average loans

for the same period

in 2021. Total

net charge-offs

for the third quarter

of 2021

included $23.1

million in

net charge

-offs related

to a

bulk sale

of $52.5

million of

residential mortgage

nonaccrual

loans and

related servicing

advance receivables.

Adjusted for

those net

charge-offs,

total net

charge-offs

in the

third quarter

of 2021 were $4.9

million, or an annualized

0.17% of average loans. Excluding

the aforementioned bulk sale,

net charge-offs

increased by

$3.7 million

mainly in

consumer loans

driven by

loan portfolio

growth. See

“Provision for

Credit Losses”

and

“Risk

Management”

below

for

analyses

the

allowance

for

credit

losses

(“ACL”)

and

non-performing

assets

and

ratios.

●

Non-interest income

amounted to

$29.7 million

for the third

quarter of

2022, compared

to $29.9 million

for the same

period

in 2021.

The $0.2

million decrease

was primarily

driven by:

(i) a

$2.7 million

decrease in

revenues from

mortgage banking

activities, primarily

related to a

lower volume

of sales; partially

offset by

(ii) a $1.1

million increase

in services

charges and

fees on deposit accounts and

(iii) a $1.1 million increase

in revenues from other non

-interest income, mainly driven

by a $0.8

million

benefit

income

tax

credits

purchased

the

third

quarter

2022.

See

“Non-Interest

Income”

below

for

additional information.

●

Non-interest expenses

for the

third quarter

of 2022

were $115.2

million, compared

to $114.0

million for

the same

period in

2021.

Non-interest expenses

for the

third quarter

of 2021

included $2.3

million of

merger and

restructuring costs

associated

with

the

acquisition

and

integration

Banco

Santander

Puerto

Rico

(“BSPR”)

and

$0.6

million

COVID-19

pandemic-

expenses,

primarily

cleaning

and

security

protocols.

Adjusted

for

the

above-mentioned

costs,

total

non-

interest

expenses

for

the

third quarter

2022

increased

by $4.1

million,

compared

the same

period

in 2021,

reflecting,

among

other

things,

increases

employees’

compensation

and

benefits

expenses,

business

promotion

expenses,

and

decrease in net gains on OREO operations.

The results for the third quarter of

2022 included $0.4 million in

hurricane-related

expenses. The efficiency

ratio for the third quarter of

2022 was 48.48%, as compared

to 53.12% for the third quarter

of 2021.

See “Non-Interest Expenses” and “Special Items”

below for additional information.

●

For the

third quarter

of 2022,

the Corporation

recorded an

income tax

expense of

$32.0 million,

compared to

$37.1 million

for the

same period

in 2021. The

variance was

primarily related

to lower

pre-tax income

and a

lower estimated

effective tax

rate

result

higher

proportion

exempt

taxable

income

when

compared

the

same

period

2021.

September

30,

2022,

the

Corporation’s

net

deferred

tax

asset amounted

$166.1

million

(net

valuation

allowance

$195.8

million,

including

valuation

allowance

$158.7

million

the

Corporation’s

banking

subsidiary,

FirstBank),

compared to

a net

deferred tax

asset of

$208.4

million as

of December

31, 2021.

See “Income

Taxes”

below and

Note 17

Income Taxes above

for additional information.

●

September

30,

2022,

total

assets

were

$18.4

billion,

down

$2.3

billion

from

December

31,

2021.

The

decrease

was

primarily

to a

$2.0

billion

decrease

cash and

cash

equivalents

mainly

attributable

the overall

decrease

in total

deposits, the

repurchase of

approximately 15.9

million shares

of common

stock for

a total purchase

price of

$225.0 million,

the repayment at maturity of $200 million in FHLB advances and a $100

million repurchase agreement. These variances were

partially offset

by a $215.0

million increase in

total loans. See

“Financial Condition and

Operating Data Analysis”

below for

additional information.

●

As of September

30, 2022, total

liabilities were $17.2

billion, down $1.5

billion from December

31, 2021. The

decrease was

mainly driven by

a $1.2 billion

decrease in total

deposits, the repayment

at maturity of

both $200 million

in FHLB advances

and a $100

million repurchase agreement

during the

first nine months

of 2022. See

“Risk Management

– Liquidity Risk

and

Capital Adequacy” below for additional information about the Corporation’s

funding sources.

●

The Bank’s

primary

sources of

funding are

consumer and

commercial

core deposits.

As of

September

30, 2022,

these core

deposits funded

90% of

total assets.

Other sources

of liquidity

include non-core

deposits, such

as brokered

CDs, as

well as

repurchase

agreements

and

FHLB

advances.

The

Bank

maintains

borrowing

capacity

the

FHLB

and

the

FED

Discount

Window.

Although currently

not in

use, as of

September 30,

2022, the

Corporation had

approximately $1.2

billion available

for funding under

the FED’s

Borrower-in-Custody (“BIC”) Program

and $1.3 billion fully

available for additional

borrowing

capacity on FHLB lines of credit.

●

September

30,

2022,

the

Corporation’s

stockholders’

equity

was

$1.3

billion,

decrease

$836.4

million

from

December 31, 2021. The decline was driven by a $778.7

million decrease in the fair value of available-for-sale

debt securities

recorded as part

of accumulated other

comprehensive loss in

the consolidated statements

of financial condition,

as a result of

changes in market

interest rates. The decrease

in total stockholders’

equity also reflects the

repurchase of approximately

15.9

million

shares of

common

stock for

a total

purchase

price of

approximately

$225.0

million

and $65.9

million

in dividends

declared

to common

stock shareholders

in the

first nine

months

of 2022.

These variances

were partially

offset

by earnings

generated

in the

first nine

months of

2022. The

Corporation’s

common

equity tier

1 capital,

tier 1

capital, total

capital and

leverage ratios under

the Basel III rules

were 16.66%, 16.66%, 19.38%,

and 10.36%, respectively,

as of September 30,

2022,

compared

to common

equity tier

1 capital,

tier 1

capital, total

capital and

leverage

ratios of

17.80%,

20.50%, and

10.14%, respectively,

as of December 31, 2021. See “Risk Management – Capital” below for additional

information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments,

but

excluding

the

utilization

activity

outstanding

credit

cards,

increased

$30.3

million

$1.1

billion

when compared to

the same period

in 2021. The

increase consisted of

a $40.7 million

increase in consumer

loan originations

and a

$32.9 million

increase in commercial

and construction

loan originations,

partially offset by a

$43.3 million decrease in

residential mortgage loan originations.

●

Total

non-performing assets

were $143.3

million as

of September

30, 2022,

a decrease

of $14.8

million from

December 31,

2021.

The decrease

was driven

by (i)

a $12.1

million reduction

in nonaccrual

residential mortgage

loans,

mostly driven

loans restored to accrual

status, collections, foreclosures,

and charge-offs recorded

during the first nine months

of 2022; (ii) a

$3.4 million

decrease in nonaccrual

commercial and

construction loans;

and (iii) a

$1.6 million decrease

in OREO and

other

assets.

These

variances

were

partially

offset

increase

$2.3

million

nonaccrual

consumer

loans.

See

“Risk

Management – Non-Accruing and Non-Performing

Assets” below for additional

information.

●

Adversely

classified

commercial

and

construction

loans

decreased

$23.9

million

to $153.4

million

as of

September

30,

2022, compared to

December 31, 2021.

The decrease was mostly

driven by $11.4

million in payoffs

of loans associated

with

three commercial

and industrial

relationships in

the Puerto

Rico region,

each in

excess of

$1 million,

and the upgrade

in the

credit

risk

classification

loans

totaling

$6.0

million

commercial

and

industrial

relationship

the

Florida

region. The

Corporation monitors its

loan portfolio

to identify potential

at-risk segments, payment

performance, the need

for

permanent modifications,

and the

performance of

different sectors

of the

economy in

all the

markets where

the Corporation

operates.

Special Items

The financial

results for

the third

quarter and

first nine

months of

2022 did

not include

any significant

special item

that management

believes

is not

reflective

core

operating

performance,

is not

expected

reoccur

with any

regularity

may

reoccur

uncertain

times and in uncertain

amounts (the “Special Items”).

The Corporation’s

financial results for the

third quarter and first

nine months of

2021 included the following Special Items:

Quarter and Nine-Month Period Ended September 30, 2021

●

Merger and restructuring

costs of $2.3 million ($1.4 million

after-tax) and $24.6 million

($15.4 million after-tax) for

the third

quarter

2021

and

nine-month

period

ended

September

30,

2021,

respectively,

connection

with

the

BSPR

acquisition

integration

process

and

restructuring

initiatives.

Merger

and

restructuring

costs

the

third

quarter

2021

were

primarily

to systems

conversions

completed

early in

the third

quarter

and other

integration

efforts.

The first

nine months

of 2021

included approximately

$6.5 million

related to a

Voluntary

Employee Separation

Program (the

“VSP”)

as well

as involuntary

separation actions

implemented in

the Puerto

Rico region.

In addition,

merger and

restructuring costs

in the

first nine

months

of 2021

included

accelerated

depreciation

charges

to planned

closures and

consolidation

branches in accordance with the Corporation’s

integration and restructuring plan.

●

Costs of

$0.6

million

($0.4

million after-tax)

and $3.0

million

($1.8

million

after-tax)

for the

third

quarter

and nine

-month

period

ended

September

30, 2021,

respectively,

to COVID-19

pandemic

response

efforts,

primarily

costs related

additional cleaning, safety materials, and security measures.

The following table shows

the net income reported

for the quarter and

nine-month period ended

September 30, 2022 and

reconciles

for

the

quarter

and

nine-month

period

ended

September

30,

2021

the

reported

net

income

adjusted

net

income,

non-GAAP

financial measure that excludes the Special Items identified above:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2022

2021

2022

2021

(In thousands)

Net income, as reported (GAAP)

74,603

75,678

231,898

207,386

Adjustments:

Merger and restructuring costs

2,268

24,582

COVID-19 pandemic-related expenses

640

2,954

Income tax impact of adjustments

(1)

(1,091)

(10,327)

Adjusted net income (Non-GAAP)

74,603

77,495

231,898

224,595

(1)

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

above adjustments that was based on the Puerto Rico statutory

tax rate of 37.5%.

Adjusted non-interest

expenses – The

following table reconciles

for the third

quarter and first

nine months of

2021 the non-interest

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

measure that excludes the relevant Special Items identified

above:

(In thousands)

Quarter Ended September 30, 2021

Non-Interest

Expenses (GAAP)

Merger and

Restructuring

Costs

COVID 19

Pandemic-Related

Expenses

Adjusted (Non-

GAAP)

Non-interest expenses

114,036

2,268

640

111,128

Employees' compensation and benefits

50,220

50,210

Occupancy and equipment

23,306

576

22,730

Business promotion

3,370

Professional service fees

13,554

Taxes, other than income taxes

5,238

5,189

FDIC deposit insurance

1,381

Net gain on OREO and OREO expenses

(2,288)

Credit and debit card processing expenses

5,573

Communications

2,250

Merger and restructuring costs

2,268

Other non-interest expenses

9,164

9,159

(In thousands)

Nine-Month Period Ended September 30, 2021

Non-Interest

Expenses (GAAP)

Merger and

Restructuring

Costs

COVID 19

Pandemic-Related

Expenses

Adjusted (Non-

GAAP)

Non-interest expenses

377,509

24,582

2,954

349,973

Employees' compensation and benefits

150,776

150,729

Occupancy and equipment

71,664

2,607

69,057

Business promotion

9,565

9,543

Professional service fees

48,019

Taxes, other than income taxes

17,013

271

16,742

FDIC deposit insurance

5,291

Net gain on OREO and OREO expenses

(529)

Credit and debit card processing expenses

16,646

Communications

7,119

Merger and restructuring costs

24,582

Other non-interest expenses

27,363

27,356

Management believes

that

the

presentation of

adjusted net

income,

adjusted non-interest

expenses and

adjustments to

the

various

components of non-interest expenses enhances the

ability of analysts and

investors to analyze trends

in the

Corporation’s business and

understand the

performance

of the Corporation.

In addition,

the Corporation

may utilize these

non-GAAP financial

measures as a guide

its budgeting

and long-term

planning

process.

Any analysis

of these

non-GAAP

financial

measures

should be

used only

in conjunction

with

results

presented

in accordance

with GAAP.

RESULTS OF OPERATIONS

Net Interest

Income

Net

interest income is

the excess

interest earned by

First BanCorp. on

its interest-earning assets over

the interest

incurred on

its

interest-bearing

liabilities.

First BanCorp.’s

net interest

income is subject

to interest

rate risk due

to the repricing

and maturity

mismatch of

the Corporation’s assets and liabilities.

Net

interest income for the quarter and nine-month

period ended September 30, 2022 was $207.9

million and $589.7 million, respectively, compared to $184.7 million and $545.8 million for

the comparable periods in 2021.

On a

tax-

equivalent basis and excluding

the changes in the fair value of derivative instruments,

net interest income for the quarter and nine-month

period ended September 30, 2022 was $217.0

million and $615.4 million, respectively, compared to $191.6 million and $563.3 million,

respectively,

for the

comparable

periods

in 2021.

The

following

tables

include a

detailed

analysis

of net

interest income

for

the

indicated periods.

Part I

presents

average

volumes

(based

the

average

daily

balance)

and

rates

adjusted

tax-equivalent

basis

and

Part II

presents,

also

adjusted

tax-

equivalent basis,

the extent

to which

changes in

interest rates

and changes

in the

volume of

interest-related assets

and liabilities

have

affected

the Corporation’s

net interest

income. For

each category

of interest-earning

assets and

interest-bearing

liabilities, the

tables

provide

information

changes

(i)

volume

(changes

volume

multiplied

prior

period

rates),

and

(ii) rate

(changes

rate

multiplied by

prior period

volumes). The

Corporation has

allocated rate-volume

variances (changes

in rate

multiplied by

changes in

volume) to either the changes in volume or the changes in rate based upon the

effect of each factor on the combined totals.

Net interest

income on

an adjusted

tax-equivalent

basis and

excluding the

change in

the fair

value of

derivative

instruments is

non-GAAP

financial

measure.

For

the

definition

this

non-GAAP

financial

measure,

refer

the

discussion

“Basis

Presentation” below.

Part I

Average Volume

Interest income

(1)

/ expense

Average Rate

(1)

Quarter ended September 30,

2022

2021

2022

2021

2022

2021

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

882,759

2,514,882

4,654

968

2.09

0.15

Government obligations

(2)

2,912,130

2,325,835

10,325

7,044

1.41

1.20

MBS

4,113,870

4,255,171

22,028

17,091

2.12

1.59

FHLB stock

16,677

27,080

292

327

6.95

4.79

Other investments

13,094

11,153

1.36

1.07

Total investments

(3)

7,938,530

9,134,121

37,344

25,460

1.87

1.11

Residential mortgage loans

2,855,927

3,193,918

39,874

43,901

5.54

5.45

Construction loans

118,794

171,088

1,831

2,178

6.12

5.05

Commercial and Industrial ("C&I")

and Commercial mortgage loans

5,085,257

5,104,362

73,518

64,835

5.74

5.04

Finance leases

647,586

528,893

11,751

9,945

7.20

7.46

Consumer loans

2,511,300

2,225,665

67,504

60,713

10.66

10.82

Total loans

(4) (5)

11,218,864

11,223,926

194,478

181,572

6.88

6.42

Total interest-earning assets

19,157,394

20,358,047

231,822

207,032

4.80

4.03

Interest-bearing liabilities:

Brokered certificates of deposit (“CDs”)

63,524

126,775

333

664

2.08

Other interest-bearing deposits

10,481,863

10,788,020

9,645

9,018

0.37

0.33

Other borrowed funds

383,762

483,762

4,266

3,848

4.41

3.16

FHLB advances

97,826

320,000

529

1,899

2.15

2.35

Total interest-bearing liabilities

11,026,975

11,718,557

14,773

15,429

0.53

0.52

Net interest income on a tax equivalent

basis and excluding valuations

217,049

191,603

Interest rate spread

4.27

3.51

Net interest margin

4.49

3.73

Average Volume

Interest income

(1)

/ expense

Average Rate

(1)

Nine-Month Period Ended September

30,

2022

2021

2022

2021

2022

2021

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

1,412,802

1,898,678

8,347

1,750

0.79

0.12

Government obligations

(2)

2,857,462

1,890,437

28,647

19,627

1.34

1.39

MBS

4,079,403

4,029,794

64,252

41,173

2.11

1.36

FHLB stock

19,788

28,917

830

1,094

5.61

5.06

Other investments

12,496

9,813

0.83

0.61

Total investments

(3)

8,381,951

7,857,639

102,154

63,689

1.63

1.08

Residential mortgage loans

2,902,542

3,347,186

121,134

135,114

5.58

5.40

Construction loans

119,214

186,998

5,123

10,530

5.75

7.53

C&I and Commercial mortgage loans

5,081,049

5,295,346

200,022

198,131

5.26

5.00

Finance leases

617,946

504,379

34,073

28,137

7.37

7.46

Consumer loans

2,422,337

2,181,738

192,379

178,195

10.62

10.92

Total loans

(4)(5)

11,143,088

11,515,647

552,731

550,107

6.63

6.39

Total interest-earning assets

19,525,039

19,373,286

654,885

613,796

4.48

4.24

Interest-bearing liabilities:

Brokered CDs

77,239

153,984

1,214

2,421

2.10

Other interest-bearing deposits

10,627,862

10,874,337

24,110

30,385

0.30

0.37

Other borrowed funds

397,315

483,762

11,451

11,248

3.85

3.11

FHLB advances

165,568

371,685

2,667

6,428

2.15

2.31

Total interest-bearing liabilities

11,267,984

11,883,768

39,442

50,482

0.47

0.57

Net interest income on a tax equivalent

basis and excluding valuations

615,443

563,314

Interest rate spread

4.01

3.67

Net interest margin

4.21

3.89

(1)

On an adjusted tax-equivalent basis. The Corporation estimated the

adjusted tax-equivalent yield by dividing the interest rate

spread on exempt assets by 1 less the Puerto Rico statutory tax

rate of 37.5% and adding to it the cost of interest-bearing liabilities.

The tax-equivalent adjustment recognizes the income tax savings

when comparing taxable and tax-exempt assets.

Management believes that it is a standard practice in the banking industry

to present net interest income, interest rate spread and net

interest margin on a fully tax-equivalent basis.

Therefore, management believes these measures provide useful information

to investors by allowing them to make peer comparisons.

The Corporation excludes changes in the fair value of

derivatives from interest income and interest expense

because the changes in valuation do not affect interest received

or paid.

(2)

Government obligations include debt issued by government-sponsored

agencies.

(3)

Unrealized gains and losses on available-for-sale debt securities

are excluded from the average volumes.

(4)

Average loan balances include

the average of nonaccrual loans.

(5)

Interest income on loans includes $2.9 million and $2.7 million for

the quarters ended September 30, 2022 and 2021, respectively,

and $8.5 million and $7.8 million for the nine-month

periods ended September 30, 2022 and 2021, respectively,

of income from prepayment penalties and late fees related to

the Corporation’s loan portfolio.

Part II

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2022 compared to 2021

Increase (decrease)

Due to:

(In thousands)

Volume

Rate

Total

Volume

Rate

Total

Interest income on interest-earning assets:

Money market and other short-term investments

(4,564)

8,250

3,686

(1,673)

8,270

6,597

Government obligations

1,956

1,325

3,281

9,882

(862)

9,020

MBS

(637)

5,574

4,937

513

22,566

23,079

FHLB stock

(153)

118

(35)

(365)

101

(264)

Other investments

Total investments

(3,392)

15,276

11,884

8,371

30,094

38,465

Residential mortgage loans

(4,661)

634

(4,027)

(18,284)

4,304

(13,980)

Construction loans

(731)

384

(347)

(3,270)

(2,137)

(5,407)

C&I and Commercial mortgage loans

(222)

8,905

8,683

(17,445)

19,336

1,891

Finance leases

2,232

(426)

1,806

6,308

(372)

5,936

Consumer loans

7,699

(908)

6,791

19,413

(5,229)

14,184

Total loans

4,317

8,589

12,906

(13,278)

15,902

2,624

Total interest income

925

23,865

24,790

(4,907)

45,996

41,089

Interest expense on interest-bearing liabilities:

Brokered CDs

(330)

(1)

(331)

(1,206)

(1)

(1,207)

Non-brokered interest-bearing deposits

(259)

886

627

(675)

(5,600)

(6,275)

Other borrowed funds

(944)

1,362

418

(2,257)

2,460

203

FHLB advances

(1,215)

(155)

(1,370)

(3,347)

(414)

(3,761)

Total interest expense

(2,748)

2,092

(656)

(7,485)

(3,555)

(11,040)

Change in net interest income

3,673

21,773

25,446

2,578

49,551

52,129

Portions

the

Corporation’s

interest-earning

assets,

mostly

investments

obligations

some

U.S.

government

agencies

and

U.S.

government-sponsored

entities

(“GSEs”),

generate

interest

that

exempt

from

income

tax,

principally

Puerto

Rico.

Also,

interest

and

gains

sales

investments

held

the

Corporation’s

international

banking

entities

(“IBEs”)

are

tax-exempt

under

Puerto Rico

tax law

(see Note

17 –

Income

Taxes,

in the

Corporation’s

unaudited

consolidated financial

statements for

the quarter

ended September

30, 2022

for additional

information). Management

believes that

the presentation

of interest

income on

an adjusted

tax-equivalent basis facilitates the

comparison of all interest data related

to these assets. The Corporation

estimated the tax equivalent

yield by

dividing the

interest rate

spread on

exempt assets

by 1

less the

Puerto Rico

statutory

tax rate

(37.5%) and

adding to

it the

average cost

of interest-bearing

liabilities. The

computation considers

the interest

expense disallowance

required by

Puerto Rico

tax

law.

Management

believes

that

the

presentation

net

interest

income

excluding

the

effects

the

changes

the

fair

value

the

derivative

instruments

(“valuations”)

provides

additional

information

about

the

Corporation’s

net

interest

income

and

facilitates

comparability

and

analysis

from

period

period.

The

changes

the

fair

value

the

derivative

instruments

have

effect

interest due on interest-bearing liabilities or interest earned on interest-earning

assets.

The following

table reconciles

net interest

income in

accordance with

GAAP to

net interest

income, excluding

valuations, and

net

interest

income

adjusted

tax-equivalent

basis

for

the

indicated

periods.

The

table

also

reconciles

net

interest

spread

and

net

interest margin on a GAAP basis to these items excluding valuations, and

on an adjusted tax-equivalent basis:

Quarter Ended

Nine-Month Period Ended

(Dollars in thousands)

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Interest Income - GAAP

222,683

200,172

629,162

596,273

Unrealized gain on derivative instruments

(11)

(4)

(35)

(22)

Interest income excluding valuations

222,672

200,168

629,127

596,251

Tax-equivalent adjustment

9,150

6,864

25,758

17,545

Interest income on a tax-equivalent basis and excluding valuations

231,822

207,032

654,885

613,796

Interest Expense - GAAP

14,773

15,429

39,442

50,482

Net interest income - GAAP

207,910

184,743

589,720

545,791

Net interest income excluding valuations

207,899

184,739

589,685

545,769

Net interest income on a tax-equivalent basis and excluding

valuations

217,049

191,603

615,443

563,314

Average Balances

Loans and leases

11,218,864

11,223,926

11,143,088

11,515,647

Total securities, other short-term investments and interest-bearing

cash balances

7,938,530

9,134,121

8,381,951

7,857,639

Average Interest-Earning Assets

19,157,394

20,358,047

19,525,039

19,373,286

Average Interest-Bearing Liabilities

11,026,975

11,718,557

11,267,984

11,883,768

Average Yield/Rate

Average yield on interest-earning assets - GAAP

4.61

3.90

4.31

4.12

Average rate on interest-bearing liabilities - GAAP

0.53

0.52

0.47

0.57

Net interest spread - GAAP

4.08

3.38

3.84

3.55

Net interest margin - GAAP

4.31

3.60

4.04

3.77

Average yield on interest-earning assets excluding valuations

4.61

3.90

4.31

4.11

Average rate on interest-bearing liabilities

0.53

0.52

0.47

0.57

Net interest spread excluding valuations

4.08

3.38

3.84

3.54

Net interest margin excluding valuations

4.31

3.60

4.04

3.77

Average yield on interest-earning assets on a tax-equivalent basis

and excluding valuations

4.80

4.03

4.48

4.24

Average rate on interest-bearing liabilities

0.53

0.52

0.47

0.57

Net interest spread on a tax-equivalent basis and excluding

valuations

4.27

3.51

4.01

3.67

Net interest margin on a tax-equivalent basis and excluding valuations

4.49

3.73

4.21

3.89

GAAP

basis,

for

the

quarter

ended

September

30,

2022,

net

interest

income

amounted

$207.9

million,

$23.2

million

increase

compared

net

interest

income

$184.7

million

for

the

same

period

2021.

The

increase

net

interest

income

was

primarily due to:

●

An $8.6 million

increase in interest income

on consumer loans and

finance leases, mainly due

to a $404.3 million

increase in

the average balance of this portfolio, mostly related to growth in the auto loans

and finance leases portfolios.

●

$8.3

million

increase

interest

income

commercial

and

construction

loans,

mainly

due

to:

(i)

the

effect

higher

market interest

rates in the

repricing of variable-rate

commercial and construction

loans, (ii) an

increase of $160.0

million in

the

average

balance

this

portfolio,

excluding

SBA

PPP

loans,

which

resulted

increase

interest

income

approximately

$1.8 million,

(iii) partially

offset

by a

$4.4 million

decrease

in interest

and realized

deferred fees

from SBA

PPP loans.

As of September

30, 2022, the interest

rate on approximately

42% of the Corporation’s

commercial and construction

loans is

based upon LIBOR, SOFR

and other short

-term indexes and

16% is based upon

the Prime rate index.

For the third quarter

2022, the average

one-month LIBOR increased

239 basis points, the

average three-month LIBOR increased

288 basis points,

the average

Prime rate

increased 211

basis points,

and the

average three-month

SOFR increased

278 basis

points, compared

to the average rates for such indexes during the third quarter of 2021.

●

$6.0

million

increase

interest

income

investment

securities,

mainly

$3.7

million

increase

interest

income

recognized

U.S.

agencies

MBS

mainly

due

to a

decrease

premium

amortization

expense

associated

lower

prepayments,

and an

increase of

approximately $2.4

million in

interest income

related to

the $577.8

million increase

in the

average balance of other

investment securities, primarily U.S.

agencies debentures, and to

a lesser extent the effects

of higher

reinvestment

yields,

and

the

upward

repricing

Puerto

Rico

municipal

bonds

held

part

the

held-to-maturity

debt

securities portfolio.

●

$3.7

million

increase

interest

income

from

interest-bearing

cash

balances,

which

consisted

primarily

deposits

maintained at the

Federal Reserve Bank,

with an average yield

of 2.09% during

the third quarter

of 2022 compared

to 0.15%

in the

third quarter

of 2021,

mainly attributable

to increases

in the

federal funds

target rate,

partially offset

by the

effects of

the $1.6 billion decrease in the average balance.

●

A $0.7 million decrease in total interest expense, including:

$1.4

million

decrease

interest

expense

FHLB

advances,

associated

with

the

$320

million

repayment

FHLB advances that matured over the last 12 months,

and

A $0.3

million

decrease

interest expense

on brokered

CDs, primarily

to a

$63.3

million

decrease

the

average balance.

Partially offset by:

$0.6

million

net

increase

interest

expense

non-brokered

interest-bearing

deposits,

mainly

associated

with

higher average rates

paid, partially offset

by the effects

of a $306.2

million reduction in

the average balance

of such

deposits;

and

$0.4

million

increase

interest

expense

other

borrowed

funds,

driven

the

upward

repricing

junior

subordinated

debentures

tied

the

increase

the

three-month

LIBOR

index,

partially

offset

the

effects

associated with the repayment of a $100 million repurchase agreement

that matured in the first quarter of 2022.

The aforementioned benefits in net interest income were partially offset

by:

●

A $4.1

million decrease

in interest

income on

residential mortgage

loans, primarily

related to

a $338.0

million reduction

the average balance of this portfolio.

For

the nine-month

period ended

September

30,

2022,

net interest

income increased $43.9

million to

$589.7 million, compared

$545.8 million

for the same

period in

2021.

The increase

in net

interest

income was

primarily

due to:

●

A $23.3

million

increase

interest

income

investment

securities,

mainly

$16.7

million

increase

interest

income

recognized

U.S.

agencies

MBS

mainly

due

to a

decrease

premium

amortization

expense

associated

lower

prepayments,

and an

increase of

approximately $6.6

million in

interest income

related to

the $960.6

million increase

in the

average balance of other investment securities, primarily U.S. agencies

debentures.

●

A $20.1 million

increase in interest income

on consumer loans and

finance leases, mainly

due to a $354.2

million increase in

the average

balance of

this portfolio,

mostly related

to growth

in the

auto loans

and finance

leases portfolios,

partially offset

by lower average yields.

●

$11.0

million

decrease

total

interest

expense,

primarily

due

to:

(i)

$6.3

million

decrease

interest

expense

interest-bearing

deposits,

excluding

brokered

CDs,

primarily

reflecting

the

effect

time

deposits

that

matured

and

were

renewed at lower rates and, to some extent, lower rates paid on

savings and interest bearing checking accounts during the first

half

2022;

(ii)

$3.8

million

decrease

interest

expense

FHLB

advances,

primarily

$206.1

million

decrease

in the

average balance

of FHLB

advances;

and (iii)

a $1.2

million

decrease

interest expense

on brokered

CDs,

primarily related to a $76.7 million decrease in the average balance.

●

$6.6

million

increase

interest

income

from

interest-bearing

cash

balances,

which

consisted

primarily

deposits

maintained

at the

Federal Reserve

Bank, with

an average

yield of

0.79% during

the first

nine months

of 2022

compared to

0.12%

for

the

same

period

2021,

mainly

attributable

to increases

the

federal

funds

target

rate,

partially

offset

the

effects associated with the $485.9 million decrease in the

average balance of interest-bearing cash balances.

Partially offset by:

●

A $14.2

million decrease

in interest income

on residential

mortgage loans,

primarily related

to a $444.6

million reduction

the average balance of this portfolio, partially offset by

higher yields.

●

A $2.9

million decrease

in interest

income on

commercial and

construction loans,

mainly due

to an

$8.7 million

decrease in

interest

income

from

SBA

PPP

loans,

associated

with

the

overall

decrease

the

size of

this

portfolio,

and

$5.4

million

decrease

interest

income

recognized

construction

loans,

mainly

associated

the

benefit

$2.9

million

interest

income realized from deferred interest recognized on a construction loan

paid-off during the first nine months of 2021 and the

effects associated with a $67.8 million reduction

in the average balance of this portfolio. These variances were

partially offset

by the effect of higher market interest rates in the repricing

of variable-rate commercial and construction loans.

As of September

30, 2022, the interest

rate on approximately

42% of the Corporation’s

commercial and construction

loans is

based upon LIBOR,

SOFR and other

indexes and 16% is

based upon the

Prime rate index. For

the first nine months

of 2022,

the average

one-month

LIBOR increased

115

basis points,

the average

three-month

LIBOR increased

154

basis points,

the

average Prime rate

increased 96 basis points,

and the average three

-month SOFR increased

147 basis points, compared

to the

average rates for such indexes during the same period of 2021.

The net

interest margin

increased by

71 basis

points to

4.31% for

the third

quarter of

2022, compared

to the

same period

of 2021,

and by

27 basis

points to

4.04% for

the first

nine months

of 2022,

compared to

the same

period of

2021. The

improved margin

was

primarily attributable

to a

combination of

the following:

(i) higher

market interest

rates and

its effect

in the

repricing of

variable-rate

commercial

loans

and

interest-bearing

cash

balances

maintained

the

Federal

Reserve;

(ii)

lower

U.S.

agencies

MBS

premium

amortization expense;

(iii) a

lower cost

of funding

driven by

lower rates

paid on

interest-bearing deposits

(excluding brokered

CDs);

and (iv) a decrease in long-term debt.

Provision

for Credit

Losses

The provision for

credit losses consists of

provisions for credit

losses on loans and

finance leases and

unfunded loan commitments,

well

held-to-maturity

and

available-for-sale

debt

securities.

The

principal

changes

the

provision

for

credit

losses

main

categories follow:

Provision for credit losses for

loans and finance leases

The provision for credit

losses for loans and

finance leases was an expense

of $14.4 million for

the third quarter of 202

2, compared

to a net benefit of $8.7 million for the third quarter of 2021. The variances

by major portfolio category were as follows:

●

Provision for credit losses for the

consumer loans and finance leases portfolio

was $17.4 million for the third

quarter of 2022,

compared

to $6.1

million

the third

quarter

2021.

The increase

the

provision

the

third

quarter

2022

primarily

reflect the effect

of the increase

in the size

of the consumer

loan portfolios,

an increase in

charge-off

levels associated to

the

overall

portfolio

growth,

and

deterioration

the

long-term

outlook

certain

macroeconomic

variables,

such

the

regional unemployment rate.

●

Provision for

credit losses

for the

residential mortgage

loan portfolio

was an

expense of

$0.8 million

for the

third quarter

2022,

compared to a net

benefit of $6.2 million

in the third quarter

of 2021. The expense

recorded during the

third quarter of

2022

was primarily

to a

deterioration

in the

long-term outlook

of forecasted

macroeconomic

variables,

primarily in

the housing

price index,

partially offset

by the

overall decrease

in the

size of

the residential

mortgage portfolio.

Meanwhile,

the net benefit

recorded in the

third quarter of

2021 was primarily

related to improvements

in the outlook

of macroeconomic

variables

and

the overall

decrease in

the size

of the

portfolio, partially

offset

by an

incremental

charge

to the

provision

for

credit

losses

$2.1

million

the

bulk

sale

$52.5

million

residential

mortgage

nonaccrual

loans

and

servicing advances.

●

Provision for

credit losses

for the

commercial and

construction loan

portfolio was

a net

benefit of

$3.8 million

for the

third

quarter of 2022, compared to a

net benefit of $8.6 million in the

third quarter of 2021. The net

benefit for the commercial and

construction loan portfolio

for the third quarter of

2022 was related mostly to

a reduction in reserves

due to updated financial

information

received

during

the

third

quarter

2022.

The

net

benefit

recorded

the

third

quarter

2021

reflected

improvements

forecasted

macroeconomic

variables,

primarily

the

commercial

real

estate

price

index,

and

the

overall

decrease in the size of this portfolio.

The

provision

for

credit

losses

for

loans

and

finance

leases

was

expense

$10.0

million

for

the

first

nine

months

2022,

compared to a net benefit of $49.5 million for the first nine months of 2021.

●

Provision for

credit losses for

the consumer

loans and

finance leases

portfolio was

$43.5 million

for the first

nine months of

2022,

compared to

$11.2

million for

the first

nine months

of 2021.

The increase

in charges

to the

provision in

the first

nine

months of

2022 primarily

reflect the

effect of

the increase

in the size

of the

consumer loan

portfolios,

an increase in

charge-

off levels, and a deterioration in macroeconomic variables,

such as the regional unemployment rate.

●

Provision for

credit losses

for the

commercial and

construction loan

portfolio was

a net

benefit of

$26.6 million

for the first

nine months

of 2022,

compared to

a net

benefit of

$51.1

million for

the first

nine months

of 2021.

The net

benefit recorded

during

the

first

nine

months

2022

mainly

reflects

reductions

qualitative

reserves

associated

with

reduced

COVID-19

uncertainties

and

updated

borrowers’

financial

information,

partially

offset

deterioration

the

long-term

outlook

forecasted

macroeconomic

variables.

The

net

benefit

recorded

the

first

nine

months

2021

reflects

improvements

forecasted macroeconomic

variables, primarily

in the commercial

real estate price

index and

unemployment rate

variables at

that time, and the overall decrease in the size of this portfolio in the Puerto Rico region.

●

Provision

for

credit

losses

for

the

residential

mortgage

loan

portfolio

was

net

benefit

$6.9

million

for

the

first

nine

months of

2022, compared

to a net

benefit of

$9.6 million

for the

first nine

months of

2021. The

net benefit

in both

periods

reflects the effect of a continued decrease in the size of the residential

mortgage loan portfolio.

During

the

first

nine

months

2022,

the

Corporation

applied

probability

weights

the

baseline

and

alternative

downside

economic

scenarios

estimate

the

ACL

with

the

baseline

scenario

carrying

the

highest

weight.

For

periods

prior

2022,

the

Corporation calculated the

ACL using the baseline

scenario. See “Risk Management

– Credit Risk Management”

below for additional

information on the

ACL estimation methodology

and for an analysis

of the ACL,

non-performing assets,

and related information,

and

“Financial Condition

and Operating

Data Analysis –

Loan Portfolio”

and “Risk Management

— Credit Risk

Management” below

for

additional

information

concerning

the

Corporation’s

loan

portfolio

exposure

the

geographic

areas

where

the

Corporation

does

business.

Provision for credit losses for

unfunded loan commitments

The provision

for credit

losses for

unfunded

commercial

and construction

loan commitments

and standby

letters of

credit was

expense of $2.0 million

and $2.7 million for

the third quarter and

first nine months of

2022, respectively,

compared to a net

benefit of

$1.0 million

and $3.4

million, for

the third

quarter and

first nine

months of

2021, respectively.

The expense

recorded during

the first

nine months

of 2022

was mainly

driven by

an increase

in unfunded

loan commitments

principally due

to newly

originated facilities

which remained undrawn as of September 30, 2022.

Provision for credit losses for

held-to-maturity and available-for-sale debt

securities

The provision

for credit

losses for

held-to-maturity debt

securities was

a net

benefit of

$0.6 million

and $0.3

million for

the third

quarter and first nine months of

2022, respectively,

compared to a net benefit of

$2.4 million and $0.5 million for

the third quarter and

first

nine

months

2021,

respectively.

The

net

benefit

recorded

during

the

first

nine

months

2022

was

mainly

due

the

Corporation’s

reduction

qualitative

reserves

driven

improvements

updated

financial

information

certain

bond

issuers

received

during

the

second

quarter

2022.

Meanwhile,

the

net

benefit

recorded

during

the

first

nine

months

2021

was

mainly

improvements

forecasted

macroeconomic

variables

and

the

repayment

certain

bonds,

partially

offset

changes

some issuers’ financial metrics based on their most recent financial statements.

The

provision

for

credit

losses

for

available-for-sale

debt

securities

was

net

benefit

$0.4

million

recorded

for

the

first

nine

months of 2022, compared to a net benefit of $0.1 million recorded

for the first nine months of 2021.

Non-Interest

Income

Non-interest

income

for

the

third

quarter

2022

amounted

$29.7

million,

compared

$29.9

million

for

the

same

period

2021.

The $0.2 million decrease in non-interest income was primarily related to:

●

$2.7

million

decrease

revenues

from

mortgage

banking

activities,

mainly

driven

$3.0

million

decrease

net

realized

gain

on sales

of residential

mortgage

loans in

the secondary

market due

to a

lower volume

of sales.

During the

third

quarters

of 2022

and

2021, net

gains

of $1.5

million and

$4.5

million,

respectively,

were recognized

as a

result of

GNMA

securitization

transactions

and

whole

loan

sales

U.S.

GSEs

amounting

$48.4

million

and

$109.6

million,

respectively.

Partially offset by:

●

A $1.1

million increase

in service

charges and

fees on

deposit accounts,

mainly due

to an

increase in

the number

of cash

management

transactions

commercial

clients.

The

variance

included

approximately

$0.1

million

waived

fees

associated with the passing of Hurricane Fiona through Puerto Rico.

●

A $1.1

million increase

in other

non-interest income

mainly driven

by a $0.8

million benefit

related to

income tax

credits

purchased

the

third

quarter

2022

and

$0.4

million

increase

fees

and

commissions

from

insurance

referrals.

During

the

third

quarter

2022

the

Corporation

was

impacted

the

passing

Hurricane

Fiona,

which

resulted

decrease

transactional

fee

income

from

point-of-sale

terminals

(“POS”)

and

merchant

transactions

approximately

$0.5 million.

●

A $0.3 million increase in insurance commission income.

Non-interest income

for the nine-month

period ended

September 30, 2022

amounted to $93.5

million, compared to

$90.8 million

for the same period in 2021. The $2.7 million increase in non-interest income

was primarily due to:

●

A $5.9 million

increase in other

non-interest income driven

by (i) a

$3.1 million increase

in transactional fee

income from

credit and

debit cards,

POS and

merchant

transactions;

(ii) a

$1.3 million

increase related

to higher

benefit of

purchased

income tax credits;

(iii) a $1.2 million

increase in fees

and commissions from

insurance referrals; and

(iv) the effect

in the

second

quarter

of 2022

$0.9

million

gain

recorded

on the

sale of

banking

facility

branch

consolidation

efforts.

●

A $2.8

million increase

in service

charges and

fees on

deposit accounts,

in part

due to

an increase

in the

number of

cash

management transactions of commercial clients and an increase in the monthly

service fee charged on certain checking and

savings products which was effective in the third quarter of 2021.

●

A $1.1 million increase in insurance commission income.

Partially offset by:

●

A $7.1

million decrease

in revenues

from mortgage

banking activities,

mainly

driven by

$8.8 million

decrease in

net

realized

gain

sales

residential

mortgage

loans

the

secondary

market

due

lower

volume

sales

and

a $0.7

million decrease

in service

fee income,

partially offset

by $1.5

million in

lower amortization

expense related

to mortgage

servicing rights

and a

$0.6 million

net increase

in mark-to-market

gains from

To-Be-Announced

(“TBA”) MBS

forward

contracts. During

the first

nine months

of 2022

and 2021,

net gains

of $7.2

million and

$16.0 million,

respectively,

were

recognized

result

GNMA

securitization

transactions

and

whole

loan

sales

U.S.

GSEs

amounting

$206.5

million and $406.9 million, respectively.

Non-Interest

Expenses

Non-interest

expenses increased

by $1.2

million to

$115.2

million for

the quarter

ended September

30, 2022,

compared to

$114.0

million for

the third

quarter of 2021.

On a non-GAAP

basis, excluding

$2.3 million

in merger

and restructuring

costs associated with

the acquisition

of BSPR and

costs of

$0.6 million

related to the

COVID-19 pandemic

response efforts

which were

recognized during

the third quarter

of 2021, non-interest

expenses increased

by $4.1 million

when compared with

the same quarter

of the previous

year.

See “Special

Items”

above for

additional information.

Some of

the most

significant variances

in adjusted

non-interest expenses

were

as follows:

●

$2.7

million

increase

adjusted

employees’

compensation

and

benefits

expenses,

primarily

reflecting

$1.7

million

increase

compensation

expense due

to annual

salary

merit increa

ses and

a $0.7

million

increase

in medical

insurance

premiums.

●

A $1.8

million increase

in adjusted

business promotion

expenses, mainly

related to

a $0.9

million increase

in advertising,

marketing and

sponsorship activities;

and $0.3

million in

donations to

non-profit organizations

in the

municipalities most

affected by Hurricane Fiona.

●

$1.2

million

decrease

net

gains

OREO

operations,

mainly

due

lower

net

realized

gains

sales

OREO

properties, primarily residential properties in the Puerto Rico region.

●

A $0.8 million increase in credit and debit card processing expenses,

in part due to higher credit card association fees when

compared to the same period of

the previous year.

The third quarter of 2021 includes

the effect of $1.4 million in

incentive

payments and cost reimbursements recorded in connection with a debit

card processing contract.

Partially offset by:

●

A $1.6

million decrease

in adjusted

other non

-interest expenses,

mainly driven

by a

$1.5 million

decrease in

charges

for

legal and

operational reserves

and a

$0.6 million

decrease in

amortization of

intangible assets

mainly associated

with the

purchased

credit card

relationship

intangible

asset recognized

connection

with

the

acquisition

FirstBank-branded

credit card loan portfolio in 2012 which became fully amortized at the

end of 2021.

●

$1.0 million

decrease in

adjusted professional

service fees,

primarily

related to

a $1.3

million decrease

in outsourcing

technology service fees

primarily related to

incremental temporary

technology costs recognized

during the third

quarter of

2021 associated with the

BSPR acquired operations, partially

offset by a $0.5

million increase in consulting

fees driven by

various technology projects.

Non-interest

expenses

for

the first

nine

months

2022

were $330.2

million,

compared

$377.5

million

for

the same

period

2021. On

a non-GAAP

basis, excluding

$24.6 million

in merger

and restructuring

costs associated

with the

acquisition of

BSPR and

costs of

$3.0 million

related to

the COVID-19

pandemic response

efforts which

were recognized

during 2021,

non-interest expenses

decreased

$19.7

million

when

compared

with

the

same

period

the

year.

See

“Special

Items”

above

for

additional

information. Some of the most significant variances in adjusted non

-interest expenses were as follows:

●

$12.8

million

decrease

adjusted

professional

service

fees,

driven

$11.1

million

decrease

outsourcing

technology service

fees, mainly

associated with

the effect

in 2021

of approximately

$7.0 million

of temporary

processing

costs incurred

in connection

with

the

acquired

BSPR operations

prior

to system

conversions and

costs of

approximately

$1.5 million incurred in connection with the platform used for SBA PPP loan originations

and forgiveness funding.

●

A $4.4 million decrease in adjusted other non-interest

expenses mainly due to (i) a $2.0 million decrease in

amortization of

intangible

assets mainly

associated

with

the

purchased

credit card

relationship

intangible asset

recognized

in connection

with the

acquisition of

a FirstBank-branded

credit card

loan portfolio

in 2012

which became fully

amortized at

the end of

2021;

(ii) a $2.8 million

decrease in charges

for legal and operational

reserves, in part due

to the reversal of

a $1.0 million

reserve

upon

resolution

operational

loss

during

the

second

quarter

2022;

and

(iii)

$0.6

million

decrease

supplies and printing expenses.

●

A $2.8

million increase

in net

gains on

OREO operations,

primarily reflecting:

(i) a $2.4

million decrease

in write-downs

to the value

of OREO properties,

in part related

to a write-down

to the value

of a commercial

property in

the Puerto

Rico

region

recorded

during

the

first

quarter

2021;

and

(ii)

$2.2

million

decrease

OREO-related

operating

expenses,

primarily

taxes,

repairs

and

insurance.

These

variances

were

partially

offset

$2.1

million

decrease

income

recognized

from rental

payments

mainly

associated to

a sale

of an

OREO income

-producing

property

during

the second

half of 2021.

●

A $2.6 million

decrease in adjusted occupancy

and equipment expenses,

primarily related to a

reduction in rental

expense,

equipment related depreciation charges,

and maintenance charges associated

with branch consolidation efforts

during 2021

and 2022.

●

A $1.7 million decrease in adjusted taxes, other than

income taxes, primarily related to lower municipal license taxes, sales

and use taxes, and property taxes.

Partially offset by:

●

$3.1

million

increase

adjusted

employees’

compensation

and

benefits

expenses,

primarily

reflecting

$3.0

million

decrease in deferred loan origination costs driven by the effect of SBA PPP loan

originations closed during 2021.

●

A $3.1

million increase

in adjusted

business promotion

expenses, mainly

related to

a $1.8

million increase

in advertising,

marketing and sponsorship

activities; and a

$0.6 million increase

in donations, of

which $0.3 million

were granted to non-

profit organizations in the municipalities most affected

by Hurricane Fiona.

Income Taxes

For the

third quarter

of 2022,

the Corporation

recorded an

income tax

expense of

$32.0 million

compared to

$37.1 million

in the

third quarter of 2021. The variance was primarily related

to lower pre-tax income and a lower estimated

effective tax rate as a result of

a higher

proportion of

exempt to

taxable income

when compared

to the

same period

in 2021.

For the

first nine

months of

2022, the

Corporation recorded

an income tax

expense of $109.2

million compared

to $105.2 million

for the same

period in 2021.

The increase

in income

tax expense

for the

nine-month

period ended

September 30,

2022, as

compared

to the

same period

in the

prior year,

was

higher pre

-tax income,

partially

offset

by a

higher

proportion

of exempt

to taxable

income

resulting

lower estimated

effective tax rate.

The Corporation’s

estimated annual

effective tax

rate in

the first

nine months

of 2022,

excluding entities

from which

a tax

benefit

cannot

recognized

and

discrete

items,

was

31.8%,

compared

33.2%

for

the

first

nine

months

2021.

The

estimated

annual

effective

tax rate,

including all

entities, for

2022 was

32.0% (32.4%

excluding discrete

items), compared

to 33.6%

for the

first nine

months of 2021

(33.8% excluding discrete

items). See Note

17 - Income

Taxes,

in the Corporation’s

unaudited consolidated

financial

statements

for

the

quarter

ended

September

30,

2022

for

additional

information

the

Corporation’s

net

deferred

tax

asset

September 30, 2022 and December 31, 2021.

100

FINANCIAL

CONDITION

AND OPERATING DATA ANALYSIS

Assets

The Corporation’s total assets

were $18.4 billion as of September 30, 2022, a decrease of $2.3

billion from December 31, 2021. The

decrease

was primarily

a $2.0

billion

decrease

in cash

and

cash

equivalents mainly

attributable

the overall

decrease

total deposits,

the repurchase

of approximately

15.9 million

shares of

common stock

for a

total purchase

price of

$225.0 million,

the

repayment

maturity

$200

million

FHLB

advances

and

$100

million

repurchase

agreement.

addition,

total

investment

securities

decreased

$524.5

million,

mainly

the

decrease

the

fair

value

available-for-sale

debt

securities

and

prepayments,

partially

offset

purchases

U.S.

agencies

and

MBS.

further

discussed

below,

these

variances

were

partially

offset by a $215.0 million increase in total loans.

The following

table presents

the composition

of the

Corporation’s

loan portfolio,

including loans

held for

sale, as

of the

indicated

dates:

September 30,

December 31,

2022

2021

(In thousands)

Residential mortgage loans

2,830,974

2,978,895

Commercial loans:

Commercial mortgage loans

2,265,614

2,167,469

Construction loans

123,994

138,999

Commercial and Industrial loans

(1)

2,858,286

2,887,251

Total commercial

loans

5,247,894

5,193,719

Consumer loans and finance leases

3,219,750

2,888,044

Total loans held

for investment

11,298,618

11,060,658

Less:

Allowance for credit losses for loans and finance leases

(257,859)

(269,030)

Total loans held

for investment, net

11,040,759

10,791,628

Loans held for sale

12,169

35,155

Total loans, net

11,052,928

10,826,783

(1)

As of September 30, 2022 and December 31, 2021, includes

$17.9 million and $145.0 million, respectively, of SBA PPP loans.

As of

September 30,

2022, the

Corporation’s

total loan

portfolio before

the ACL

amounted to

$11.3

billion, an

increase of

$215.0

million compared to December

31, 2021. The growth reflects increases

of $131.1 million in the Puerto

Rico region and $101.9 million

the

Florida

region,

partially

offset

decrease

of $18.0

million

the

Virgin

Islands region.

portfolio

basis,

the

increase

consisted of a $331.7

million increase in consumer

loans, including a $276.9

million increase in auto loans

and leases, and an increase

of $54.2

million in

commercial and

construction

loans (net

of a

$127.1 million

decrease in

the carrying

value of

the SBA

PPP loan

portfolio),

partially offset by

a reduction of $170.9

million in residential

mortgage loans. Excluding the

$127.1 million decrease in

the

carrying value of

SBA PPP loans,

commercial and construction

loans increased by

$181.3 million mainly

reflecting the origination

loans

multiple

commercial

relationships,

each

excess

$10

million,

that

increased

the

portfolio

amount

$418.7

million, partially offset

by payoffs and

paydowns of large

commercial and constructions

relationships totaling $199.2

million, and the

sale of a $35.2 million commercial and industrial loan participation in

the Puerto Rico region, as further explained below.

101

As of September

30, 2022,

loans held for

investment were

comprised of

commercial and construction

loans (46%),

residential real

estate loans (25%),

and consumer and finance

leases (29%). Of the

total gross loan portfolio

held for investment

of $11.3 billion

as of

September

30,

2022,

the

Corporation

had

credit

risk

concentration

approximately

79%

the

Puerto

Rico

region,

18%

the

United States region (mainly

in the state of Florida), and 3% in the Virgin

Islands region, as shown in the following table:

As of September 30, 2022

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,240,466

174,766

415,742

2,830,974

Commercial mortgage loans

1,688,345

66,102

511,167

2,265,614

Construction loans

23,595

4,121

96,278

123,994

Commercial and Industrial loans

(1)

1,772,418

69,748

1,016,120

2,858,286

Total commercial

loans

3,484,358

139,971

1,623,565

5,247,894

Consumer loans and finance leases

3,149,526

58,911

11,313

3,219,750

Total loans held

for investment, gross

8,874,350

373,648

2,050,620

11,298,618

Loans held for sale

12,169

Total loans, gross

8,886,519

373,648

2,050,620

11,310,787

(1)

As of September 30, 2022, includes $17.9 million of SBA PPP

loans consisting of $13.7 million in the Puerto Rico region,

$0.4 million in the Virgin Islands region,

and $3.8 million in the United States region.

As of December 31, 2021

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,361,322

188,251

429,322

2,978,895

Commercial mortgage loans

1,635,137

67,094

465,238

2,167,469

Construction loans

38,789

4,344

95,866

138,999

Commercial and Industrial loans

(1)

1,867,082

79,515

940,654

2,887,251

Total commercial

loans

3,541,008

150,953

1,501,758

5,193,719

Consumer loans and finance leases

2,820,102

52,282

15,660

2,888,044

Total loans held

for investment, gross

8,722,432

391,486

1,946,740

11,060,658

Loans held for sale

33,002

177

1,976

35,155

Total loans, gross

8,755,434

391,663

1,948,716

11,095,813

(1)

As of December 31, 2021, includes $145.0 million of SBA PPP

loans consisting of $102.8 million in the Puerto Rico region,

$8.2 million in the Virgin Islands

region, and $34.0 million in the United States region.

102

Residential Real Estate Loans

September

30,

2022,

the

Corporation’s total

residential mortgage loan

portfolio, including loans

held

for

sale, decreased

$170.9 million,

as compared to the balance

as of December 31,

2021. The residential

mortgage loan

portfolio decreased

by $141.7 million

in the Puerto

Rico region,

$15.6 million

in the Florida

region, and

$13.6 million

in the Virgin Islands

region. The

decline in

all regions

was

driven by

repayments,

foreclosures,

and charge-offs,

which more

than offset

the volume

of new loan

originations

kept on

the balance

sheet.

The

majority

the

Corporation’s

outstanding

balance

residential

mortgage

loans

the

Puerto

Rico

and

the

Virgin

Islands

regions consisted

of fixed-rate loans

that traditionally

carry higher

yields than

residential mortgage

loans in

the Florida

region. In

the

Florida

region,

approximately

49%

the

residential

mortgage

loan

portfolio

consisted

hybrid

adjustable-rate

mortgages.

accordance with

the Corporation’s

underwriting guidelines,

residential mortgage

loans are

primarily fully

documented loans,

and the

Corporation does not originate negative amortization loans.

Commercial and Construction Loans

September

30,

2022,

the

Corporation’s

commercial

and

construction

loan

portfolio

increased

$54.2

million

(net

$127.1 million decrease in the SBA PPP loan portfolio), as compared to

the balance as of December 31, 2021.

In the Puerto Rico region, commercial and construction

loans decreased by $56.7 million (including

a $89.1 million decrease in the

SBA PPP loan portfolio)

as compared to the

balance as of December

31, 2021. Excluding the

$89.1 million decrease

in the SBA PPP

loan portfolio

commercial and

construction loans

in the

Puerto Rico

region increased

by $32.4

million, driven

by the

origination of

loans

six

commercial

relationships,

each

excess of

$10

million,

that

increased

the

portfolio

amount by

$133.8

million,

partially

offset

the

early

payoff

two

commercial

and

construction

loans

totaling

$41.9

million,

the

sale

$35.2

million

commercial and industrial loan participation, and the repayment of a $20.6

million commercial and industrial loan.

In the

Florida region,

commercial and

construction loans

increased by

$121.8 million

(net of

a $30.2 million

decrease in

the SBA

PPP loan portfolio)

as compared to

the balance as

of December 31,

2021. Excluding the

$30.2 million decrease

in the SBA PPP

loan

portfolio,

commercial

and

construction

loans

the

Florida

region

increased

$152.0

million,

driven

the

origination

loans

fifteen

commercial

relationships,

each

excess

$10

million,

that

increased

the

portfolio

amount

$284.9

million,

partially offset by the

payoff of three commercial

and construction loans totaling $87.3

million and the repayments of

two commercial

and industrial loans totaling $49.4 million.

In the

Virgin

Islands region,

commercial and

construction loans

decreased by

$10.9 million,

driven by

a $7.8

million decrease

the SBA PPP loan portfolio, as compared to the balance as of December 31, 2021.

As of

September

30,

2022,

the Corporation

had $158.4

million outstanding

in loans

extended

to the

Puerto

Rico government,

its

municipalities,

and

public

corporations,

compared

$178.4

million

December

31,

2021.

See

“Exposure

Puerto

Rico

Government” below for additional information.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

September

30,

2022,

the

Corporation

had

$37.6

million

loans

USVI

government

public

corporations,

compared

$39.2

million

December

31,

2021.

See

“Exposure

USVI Government” below for additional information.

September

30,

2022,

the

Corporation’s

total

exposure

shared

national

credit

(“SNC”)

loans

(including

unused

commitments)

amounted

$1.0

billion,

compared

$918.6

million

December

31,

2021.

September

30,

2022,

approximately

$144.4

million

the

SNC

exposure

the

portfolio

Puerto

Rico

and

$884.4

million

the

portfolio in the Florida region.

103

Consumer Loans and Finance Leases

As of September

30, 2022, the Corporation’s

consumer loan and finance

lease portfolio increased by

$331.7 million to $3.2

billion,

compared

the

portfolio

balance

$2.9

billion

December

31,

2021.

The

increase

was

reflected

all

classes

within

the

consumer

loan

portfolio

segment,

including

increases

$182.8

million

and

$94.1

million

the

auto

loans

and

finance

leases

portfolios, respectively

The growth

in consumer

loans is

mainly reflected

in the

Puerto Rico

region and

was driven

by an

increased

level of loan originations during the first nine months of 2022.

Loan Production

First BanCorp.

relies primarily on

its retail

network of

branches to

originate residential and

consumer loans.

The Corporation

may

supplement its residential

mortgage originations

with wholesale servicing

released mortgage loan purchases

from mortgage bankers. The

Corporation manages its construction

and commercial loan originations

through centralized

units and most of its

originations come from

existing

customers,

as well

as through

referrals

and direct

solicitations.

The following table provides

a breakdown of First BanCorp.’s loan production,

including purchases,

refinancings,

renewals and draws

from existing

revolving

and non-revolving

commitments,

for the indicated

periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2022

2021

2022

2021

(In thousands)

Residential mortgage

103,897

147,212

352,942

468,306

Commercial mortgage

96,894

113,789

430,599

246,223

Commercial and Industrial

(1)

562,828

510,551

1,675,838

1,911,230

Construction

21,892

24,367

88,758

71,009

Consumer

459,402

405,305

1,368,121

1,121,386

Total loan production

1,244,913

1,201,224

3,916,258

3,818,154

(1) For the nine-month period ended September 30, 2021,

includes $283.7 million

in originations of SBA PPP loans.

104

During the quarter and nine-month

period ended September 30, 2022,

total loan originations, including purchases, refinancings,

and

draws from existing revolving and

non-revolving commitments, amounted to

approximately $1.2 billion and $3.9

billion, respectively,

compared

$1.2

billion

and

$3.8

billion,

respectively,

for

the

comparable

periods

2021.

Total

loans

originations

increased

$43.7 million for

the third quarter

of 2022, compared

to the same period

of 2021. During

the nine-month period

ended September 30,

2021,

the Corporation originated SBA PPP loans totaling $283.7 million.

Excluding SBA PPP loans originated in the first nine months

of 2021, total loan originations increased by $381.8 million for

the first nine months of 2022, compared to the same period of 2021.

Residential

mortgage

loan

originations

for

the

quarter

and

nine-month

period

ended

September

30,

2022

amounted

$103.9

million and

$352.9 million,

respectively,

compared to

$147.2 million

and $468.3

million, respectively,

for the

comparable periods

2021.

The decrease

of $43.3

million in

the third

quarter of

2022,

as compared

to the

same period

in 2021,

reflects

declines of

$35.6

million, $7.3 million, and

$0.4 million in the Puerto

Rico, Florida,

and Virgin

Islands regions, respectively.

For the nine-month period

ended September 30,

2022, the decrease

of $115.4

million consisted of

declines of $92.5

million and $22.8

million in the Puerto

Rico

and Florida regions,

respectively.

The decrease in

the 2022 periods

reflects

lower levels of

refinancings driven by

the effect of

higher

market

interest

rates.

Approximately

58%

the

$281.2

million

residential

mortgage

loan

originations

the

Puerto

Rico

region

during the

first nine

months of

2022 were

of conforming

loans, compared

to 89%

of $373.8

million for

the nine-month

period ended

September 30, 2021. The

decrease during 2022 is related

to lower volume of conforming

loan originations and refinancings,

driven by

the effect of lower mortgage loan interest rates and increased

home purchase activity during 2021.

Commercial

and

construction

loan

originations

(excluding

government

loans)

for

the

quarter

and

nine-month

period

ended

September

30,

2022

amounted

$679.7

million

and

$2.2

billion,

respectively,

compared

$607.4

million

and

$2.2

billion,

respectively,

for the

comparable periods

in 2021.

Commercial and

construction

loan originations

increased by

$72.3 million,

for the

third quarter

of 2022,

compared to

the same

period in

2021. The

increase in

the third

quarter of

2022 consisted

of increases

of $45.2

million

and

$32.8

million

in the

Puerto

Rico

and

Florida

regions,

respectively,

partially

offset

decrease

$5.7

million

the

Virgin

Island

region.

Total

commercial

and

construction

loan

originations

the

nine-month

period

ended

September

30,

2021

includes

SBA

PPP

loan

originations

$283.7

million.

Excluding

SBA

PPP

loan

originations,

commercial

and

construction

loan

originations increased by $274.2 million in the first nine

months of 2022, compared to the same period in 2021.

The increase consisted

of increases of $144.7

million and $136.1 million

in the Puerto Rico and Florida

regions, respectively,

partially offset by a decrease

$6.6 million in the Virgin

Island region.

Government loan originations for the quarter

and nine-month period ended September

30, 2022 amounted to $1.8 million

and $36.6

million,

respectively,

compared

$41.2

million

and

$60.4

million,

respectively,

for

the

comparable

periods

2021.

Government

loan

originations

during

the first

nine

months of

2022 are

mainly

to the

renewal of

a public

corporation

line of

credit in

the

Virgin

Islands regions,

the renewal

of a

municipal loan

in the

Puerto Rico

region,

and the

utilization of

an arranged

overdraft line

credit

government

entity

the

Virgin

Islands

region.

the

other

hand,

government

loan

originations

during

the

first

nine

months of

2021 were driven

by the refinancing

of several loans

of a government

unit in the

Virgin

Islands, as well

as the

refinancing

of several loans to municipalities in the Puerto Rico region.

Originations of auto

loans (including finance

leases) for the

quarter and nine-month

period ended September

30, 2022 amounted

$244.9

million

and

$775.7

million,

respectively,

compared

$248.4

million

and

$691.9

million,

respectively,

for

the

comparable

periods in

2021. The

decrease in

the third

quarter of

2022, as

compared to

the same

quarter of

2021, consisted

of a

decrease of

$5.6

million in the Puerto

Rico region, partially offset

by an increase of $2.1

million in the Virgin

Islands regions.

The increase in the first

nine months

of 2022,

as compared

to the

same period of

2021, consisted

of increases

of $80.5

million and

$3.3 million,

respectively,

in the Puerto Rico

and Virgin

Island regions. Personal

loan originations,

other than credit cards,

for the quarter and

nine-month period

ended September 30, 2022 amounted

to $90.2 million and $233.0 million,

respectively,

compared to $45.9 million and $123.9 million,

respectively,

for

the

comparable

periods

in 2021.

Most

of the

increase

personal

loan

originations

for

the quarter

and

nine-month

period ended

September 30, 2022,

as compared with

the same period

in 2021, was

in the Puerto

Rico region. The

utilization activity

on the outstanding

credit card portfolio

for the quarter

and nine-month

period ended

September 30,

2022 amounted

to $124.3 million

and $359.3 million, respectively,

compared to $110.9 million and $305.5

million, respectively, for the comparable

periods in 2021.

105

Investment Activities

part

its

liquidity,

revenue

diversification

and

interest

rate

risk

management

strategies,

First

BanCorp.

maintains

debt

securities portfolio classified as available for sale or held to maturity.

The

Corporation’s

total

available-for-sale

debt

securities

portfolio

September

30,

2022

amounted

$5.7

billion,

$785.0

million decrease

from December

31, 2021.

The decrease

was mainly

driven by

a $778.7

million decrease

in fair

value attributable

changes

market

interest

rates

and

the

prepayments

approximately

$513.9

million

U.S.

agencies

MBS,

partially

offset

purchases of U.S. agencies debentures and MBS totaling $521.9 million

during the first nine months of 2022.

September

30,

2022,

substantially

all

the

Corporation’s

available-for-sale

debt

securities

portfolio

was

invested

U.S.

government and

agencies debentures

and fixed-rate

GSEs’ MBS. In

addition, as

of September

30, 2022,

the Corporation

held a

bond

issued

the

PRHFA,

classified

as available

for

sale,

specifically

residential

pass-through

MBS in

the

aggregate

amount

of $3.4

million

(fair

value

$2.2

million).

This

residential

pass-through

MBS

issued

the

PRHFA

collateralized

certain

second

mortgages originated

under a program

launched by the

Puerto Rico government

in 2010 and

had an unrealized

loss of $1.2

million as

of September

30, 2022,

of which

$0.4 million

is due

to credit

deterioration.

During 2021,

the Corporation

placed

this instrument

nonaccrual status based on the delinquency status of the underlying

second mortgage loans collateral.

September

30,

2022,

the

Corporation’s

held-to-maturity

debt

securities

portfolio,

before

the

ACL,

increased

$445.9

million,

compared

$178.1

million

December

31,

2021,

mainly

driven

purchases

GSEs’

MBS

totaling

$289.8

million

during the first

nine months of

2022. Held-to-maturity

debt securities consisted

of fixed-rate GSEs’

MBS and financing

arrangements

with Puerto Rico municipalities issued

in bond form, which the

Corporation accounts for as securities,

but which were underwritten

loans with features

that are typically

found in commercial

loans. Puerto Rico

municipal bonds

typically are not

issued in bearer

form,

are

not

registered

with

the

Securities

and

Exchange

Commission,

and

are

not

rated

external

credit

agencies.

These

bonds

have

seniority to the payment of operating costs and expenses of the

municipality and, in most cases, are supported by assigned property

tax

revenues.

Approximately

74%

the

Corporation’s

municipality

bonds

consisted

obligations

issued

four

the

largest

municipalities in Puerto Rico. The municipalities are required

by law to levy special property taxes in such amounts

as are required for

the

payment

all

their

respective

general

obligation

bonds

and

loans.

Given

the

uncertainties

the

effects

that

the

fiscal

position of the Puerto Rico central government, the COVID-19 pandemic,

and the measures taken, or to be taken, by other government

entities may

have on

municipalities, the

Corporation cannot

be certain

whether future

charges to

the ACL

on these

securities will

required.

As of

September

30, 2022

the ACL

for

held-to-maturity

debt

securities was

$8.3

million,

compared

to $8.6

million

as of

December 31, 2021.

See

“Risk Management

–

Exposure

to Puerto

Rico

Government”

below

for information

and

details

about the

Corporation’s

total

direct exposure

to the

Puerto Rico

government,

including municipalities

and “Credit

Risk Management”

below for

the ACL

of these

direct exposures.

106

The following table presents the carrying value of investments as of the indicated dates:

September 30,

December 31,

2022

2021

(In thousands)

Money market investments

2,057

2,682

Debt securities available for sale, at fair value:

U.S. government and agencies obligations

2,474,277

2,405,468

Puerto Rico government obligations

2,193

2,850

MBS:

Residential

3,007,069

3,803,933

Commercial

184,650

240,510

Other

500

1,000

Total debt securities available

for sale, at fair value

5,668,689

6,453,761

Debt securities held-to-maturity,

at amortized cost:

MBS:

Residential

174,241

Commercial

106,235

Puerto Rico municipal bonds

165,386

178,133

ACL for Puerto Rico municipal bonds held to maturity

(8,257)

(8,571)

437,605

169,562

Equity securities, including $12.3 million and $21.5 million of FHLB stock,

as of September 30, 2022 and December 31, 2021, respectively

24,727

32,169

Total money market

investments and investment securities

6,133,078

6,658,174

107

The carrying values of debt securities as of September 30, 2022, by contractual maturity

(excluding MBS), are shown below:

Carrying

Weighted

(Dollars in thousands)

Amount

Average Yield

U.S. government and agencies obligations:

Due within one year

71,188

0.28

Due after one year through five years

2,219,918

0.81

Due after five years through ten years

170,194

1.01

Due after ten years

12,977

3.46

2,474,277

0.82

Puerto Rico government and municipalities obligations:

Due within one year

1,200

4.49

Due after one year through five years

42,426

5.51

Due after five years through ten years

55,737

4.82

Due after ten years

68,216

5.36

167,579

5.21

Other debt securities:

Due within one year

500

0.84

Total

2,642,356

1.08

MBS

3,472,195

1.63

ACL on held-to-maturity debt securities

(8,257)

Total debt securities

6,106,294

1.40

Net

interest

income

future

periods

could

affected

prepayments

MBS.

Any

acceleration

the

prepayments

MBS

purchased

premium

would

lower

yields

these

securities,

since

the

amortization

premiums

paid

upon

acquisition

would

accelerate. Conversely,

acceleration of the

prepayments of MBS would

increase yields on

securities purchased at

a discount, since

the

amortization of

the discount

would accelerate.

These risks

are directly

linked to

future period

market interest

rate fluctuations.

Also,

net interest income in future periods might be affected by

the Corporation’s investment in callable

debt securities. As of September 30,

2022,

the Corporation had approximately

$2.1 billion in callable debt

securities (U.S. agencies government

securities) with an average

yield of

0.83%, of which

approximately 56%

were purchased

at a discount

and 6%

at a premium.

See “Risk Management”

below for

further

analysis

of the

effects

of changing

interest rates

on the

Corporation’s

net

interest income

and

the Corporation’s

interest

rate

risk management

strategies. Also

see Note

2 –

Debt Securities,

in the

Corporation’s

unaudited

consolidated

financial statements

for

the quarter ended September 30, 2022 for additional information regarding

the Corporation’s debt securities portfolio.

RISK MANAGEMENT

Risks

are

inherent

virtually

all

aspects

the

Corporation’s

business

activities

and

operations.

Consequently,

effective

risk

management

fundamental

the

success

the

Corporation.

The

primary

goals

risk

management

are

ensure

that

the

Corporation’s

risk-taking activities are

consistent with the

Corporation’s

objectives and risk

tolerance, and that

there is an appropriate

balance between risk and reward in order to maximize stockholder value.

The

Corporation

has

place

risk

management

framework

monitor,

evaluate

and

manage

the

principal

risks

assumed

conducting its activities. First BanCorp.’s

business is subject to eleven

broad categories of risks: (i) liquidity

risk; (ii) interest rate risk;

(iii) market risk; (iv)

credit risk; (v) operational

risk; (vi) legal and

regulatory risk; (vii) reputational

risk; (viii) model risk;

(ix) capital

risk; (x)

strategic risk;

and (xi)

information technology

risk. First

BanCorp. has

adopted policies

and procedures

designed to

identify

and manage the risks to which the Corporation is exposed.

The Corporation’s

risk management

policies are

described

below, as well as in Part II,

Item 7, “Management’s

Discussion

and Analysis

of Financial

Condition

and Results

of Operations,”

in the

2021 Annual

Report

on Form

10-K.

Liquidity Risk and Capital Adequacy

Liquidity risk

involves the ongoing

ability to accommodate

liability maturities

and deposit withdrawals,

fund asset growth

and business

operations, and meet contractual obligations through unconstrained

access to funding at

reasonable market rates. Liquidity management

involves forecasting funding requirements and maintaining sufficient capacity to meet

liquidity needs and

accommodate fluctuations in

asset and

liability

levels due

to changes

in the Corporation’s

business

operations

or unanticipated

events.

108

The Corporation manages liquidity at two levels. The

first is the

liquidity of the parent company,

which is the

holding company that

owns the

banking

and non-banking

subsidiaries.

The second

is the liquidity

of the banking

subsidiary. During

the first

nine months

of 2022,

the Corporation continued to pay quarterly interest payments

on the subordinated debentures associated

with its trust preferred securities

(“TRuPs”) and

quarterly dividends on

its

common

stock.

For

the

nine-month period

ended September

30,

2022,

First BanCorp.

has

repurchased

approximately

15.9 million

for a total

purchase

price of

$225.0 million.

The

Asset

and

Liability

Committee

the

Corporation’s

Board

Directors

responsible

for

overseeing

management’s

establishment

the

Corporation’s

liquidity

policy,

well

approving

operating

and

contingency

procedures

and

monitoring

liquidity

ongoing

basis.

The

Management’s

Investment

and

Asset

Liability

Committee

(“MIALCO”),

which

reports

the

Board

Directors’

Asset

and

Liability

Committee,

uses

measures

liquidity

developed

management

that

involve

the

use

several assumptions

to review the

Corporation’s

liquidity position

on a monthly

basis. The MIALCO

oversees liquidity

management,

interest rate risk and other related matters.

The MIALCO

is composed

of senior

management officers,

including the

Chief Executive

Officer,

the Chief

Financial Officer,

the

Chief Risk Officer,

the Business Group Director,

the Strategy Management

Director, the

Treasury and

Investments Risk Manager,

the

Financial

Planning

and

ALM

Director,

and

the

Treasurer.

The

Treasury

and

Investments

Division

responsible

for

planning

and

executing the

Corporation’s

funding activities

and strategy,

monitoring liquidity

availability on

a daily

basis, and

reviewing liquidity

measures

weekly

basis.

The

Treasury

and

Investments

Accounting

and

Operations

area

the

Comptroller’s

Department

responsible

for

calculating

the

liquidity

measurements

used

the

Treasury

and

Investment

Division

review

the

Corporation’s

liquidity

position

monthly

basis.

The

Financial

Planning

and

ALM

Division

is responsible

for

estimating

the

liquidity

gap

for

longer periods.

ensure

adequate

liquidity

through

the

full

range

potential

operating

environments

and

market

conditions,

the

Corporation

conducts

its

liquidity

management

and

business

activities

manner

that

intended

preserve

and

enhance

funding

stability,

flexibility and diversity.

Key components of

this operating strategy

include a strong

focus on the continued

development of customer-

based funding,

the maintenance of

direct relationships

with wholesale market

funding providers, and

the maintenance of

the ability to

liquidate certain assets when, and if, requirements warrant.

The Corporation develops and maintains contingency funding

plans. These plans evaluate the Corporation’s

liquidity position under

various operating

circumstances and

are designed to

help ensure that

the Corporation

will be able

to operate through

periods of

stress

when

access

normal

sources

funds

could

constrained.

The

plans

project

funding

requirements

during

potential

period

stress, specify

and quantify

sources of

liquidity,

outline actions

and procedures

for effectively

managing liquidity

through a

difficult

period,

and define

roles and

responsibilities for

the Corporation’s

employees.

Under the

contingency

funding plans,

the Corporation

stresses the balance sheet and the liquidity

position to critical levels that mimic difficulties

in generating funds or even maintaining

the

current funding

position of

the Corporation

and the Bank

and are designed

to help ensure

the ability of

the Corporation

and the Bank

honor

their

respective

commitments.

The

Corporation

has

established

liquidity

triggers

that

the

MIALCO

monitors

order

maintain

the

ordinary

funding of

the banking

business. The

MIALCO

developed

contingency

funding

plans

for

the following

three

scenarios: a

credit rating

downgrade, an

economic cycle

downturn event,

and a funding

concentration event.

The Board

of Directors’

Asset and Liability Committee reviews and approves these plans on an annual

basis.

The

Corporation manages its liquidity in

a proactive manner and

in an

effort to

maintain a sound

liquidity position.

It uses

multiple

measures to monitor

the liquidity

position, including

core liquidity, basic

liquidity, and time-based

reserve measures.

As of September 30,

2022,

the estimated core

liquidity reserve (which includes cash

and free

high quality liquid

assets such

as U.S.

government and GSEs

obligations

that could be liquidated

within one day)

was $3.4 billion,

or 18.57%

of total assets,

compared to $5.6

billion, or 27.0%

of total

assets,

December 31,

2021.

The

basic

liquidity ratio

(which

adds

available secured

lines

credit

the

core

liquidity) was

approximately

25.86%

of total assets

as of September 30, 2022, compared to 32.7%

of total assets

as of December

31, 2021.

The decrease

in the core liquidity reserves

is in part due to the reduction of bank deposits

during the first nine months

of 2022 associated to the overall

interest

rate increase

environment

and the FED’s

economic

tightening

monetary

policy.

September

30,

2022,

the

Corporation

had

$1.3

billion

fully

available

for

credit

from

the

FHLB.

The

Corporation

also

maintains

borrowing

capacity

the

Federal

Discount

Window.

The

Corporation

does

not

consider

borrowing

capacity

from

the

Federal Reserve Discount

Window as

a primary source

of liquidity but

had approximately $1.2

billion available for

funding under the

FED’s BIC Program as of September 30, 2022 as an additional contingent

source.

Total loans pledged

to the Federal Reserve Discount

Window

amounted to

$2.1 billion

as of

September 30,

2022. The

Corporation also

does not

rely on

uncommitted inter-bank

lines of

credit (federal funds lines) to fund its operations and does not include them

in the basic liquidity measure.

As of

September 30,

2022, the

holding company

had $18.3

million in

cash and

cash equivalents.

Cash and

cash equivalents

at the

Bank

level

September

30,

2022

were

approximately

$554.3

million.

The

Bank

had

$45.2

million

brokered

CDs

September 30,

2022, of which

approximately $17.8

million mature over

the next twelve

months. Liquidity

at the Bank

level is highly

dependent

bank

deposits,

which

fund

90.1%

the

Bank’s

assets

(or

89.9%

excluding

brokered

CDs).

Historically,

the

use

brokered CDs

has been

an additional

source of

funding for

the Corporation

as it

provides an

additional efficient

channel for

funding

109

diversification

and

can

be obtained

faster

than

regular

retail

deposits.

Brokered

CDs have

been

maintained

low

levels due

the

excess liquidity and

availability of core deposits.

Funding through brokered

CDs could potentially increase

the overall cost of

funding

for the Corporation and impact the net interest margin.

Furthermore, as

a provider of

financial services,

the Corporation routinely

enters into commitments

with off-balance

sheet risk to

meet the

financial needs

of its

customers. These

financial instruments

may include

loan commitments

and standby

letters of

credit.

These

commitments

are

subject

the

same

credit

policies

and

approval

processes

used

for

on-balance

sheet

instruments.

These

instruments involve, to varying degrees,

elements of credit and interest rate risk

in excess of the amount recognized in the

statements

of financial

condition. As

of September

30, 2022,

the Corporation’s

commitments to

extend credit

amounted to

approximately $1.9

billion.

Commitments

extend

credit

are

agreements

lend

customer

long

there

violation

any

condition

established

the

contract.

Since

certain

commitments

are

expected

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

reevaluate

the

agreement

prior

additional

disbursements.

There

have

been

significant

unexpected

draws

existing commitments. 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.

110

The following table summarizes commitments to extend credit and standby letters

of credit as of the indicated dates:

September 30,

December 31

2022

2021

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

194,104

197,917

Unused personal lines of credit

975,949

1,180,824

Commercial lines of credit

709,140

725,259

Commercial letters of credit

84,724

151,140

Standby letters of credit

9,238

4,342

The Corporation engages in the ordinary course of business

in other financial transactions that are not recorded on the

balance sheet,

may

recorded

the

balance

sheet

amounts

that

are

different

from

the

full

contract

notional

amount

the

transaction,

affecting the Corporation’s

liquidity position. These

transactions are designed

to (i) meet the

financial needs of customers,

(ii) manage

the Corporation’s credit,

market and liquidity risks, (iii) diversify the Corporation’s

funding sources, and (iv) optimize capital.

In addition to the

aforementioned off-balance

sheet debt obligations

and unfunded commitments

to extend credit, the

Corporation

has

obligations

and

commitments

make

future

payments

under

contracts,

amounting

approximately

$2.6

billion

September 30,

2022. Our

material cash

requirements comprise

primarily of

contractual obligations

to make future

payments related

time

deposits,

short-term

borrowings,

long-term

debt,

and

operating

lease

obligations.

also

have

other

contractual

cash

obligations

certain

binding

agreements

have

entered

into

for

services

including

outsourcing

technology

services,

security,

advertising

and

other

services

which

are

not

material

our

liquidity

needs.

currently

anticipate

that

our

available

funds, high-quality unpledged government

and agency securities, credit facilities,

and cash flow from

operations will be sufficient

meet our operational cash needs for the foreseeable future.

Off-balance sheet

transactions are continuously

monitored to consider

their potential impact

to our liquidity

position and changes

are applied to the balance between sources and uses of funds as deemed appropriate

to maintain a sound liquidity position.

Sources of Funding

The

Corporation

utilizes

different

sources

funding

help

ensure

that

adequate

levels

liquidity

are

available

when

needed.

Diversification of

funding sources is

of great importance

to protect the

Corporation’s

liquidity from market

disruptions. The

principal

sources of

short-term funds

are deposits,

including brokered

CDs, securities

sold under

agreements to

repurchase, and

lines of

credit

with the FHLB. Consistent with its strategy,

the Corporation has been seeking to add core deposits.

The Asset and Liability Committee

reviews credit availability on

a regular basis. The Corporation

has also sold mortgage loans

as a

supplementary

source

funding

and

participates

the

BIC

Program

the

FED.

The

Corporation

has

also

obtained

long-term

funding in the past through the issuance of notes and long-term brokered CDs.

The

Corporation

continues

have

access

financing

through

counterparties

repurchase

agreements,

the

FHLB,

and

other

agents, such

as wholesale funding

brokers. While liquidity

is an ongoing

challenge for all

financial institutions,

management believes

that

the

Corporation’s

available

borrowing

capacity

and

efforts

grow

retail

deposits

will

adequate

provide

the

necessary

funding for the Corporation’s business

plans in the foreseeable future.

The Corporation’s principal

sources of funding are:

Retail

deposits

–

The

Corporation’s

deposit

products

include

regular

savings

accounts,

demand

deposit

accounts,

money

market

accounts

and

retail

CDs. As

September

30,

2022,

the

Corporation’s

deposits,

excluding

government

deposits

and

brokered

CDs,

decreased

$835.4

million

$13.6

billion,

compared

$14.4

billion

December

31,

2021.

Certain

non-maturity

deposits

previously

reported

brokered

deposits,

which

amounted

$144.3

million

and

$247.5

million,

September

30,

2022

and

December 31,

2021, respectively,

were recharacterized

as non-brokered

deposits for

both periods

presented based

on exclusions

and

clarifications of

the deposit

broker definition

included in

the FDIC

Brokered

Deposits Final

Rule. The

above-mentioned

decrease of

$835.4

million

was

primarily

lower

balances

commercial

savings

accounts,

retail

CDs,

and

retail

demand

deposits

accounts

primarily

the

Puerto

Rico

region,

part due

to the

overall

interest

rate

increase

environment

and

the

FED’s

economic

tightening policy.

111

Government deposits –

As of September

30, 2022, the

Corporation had $2.5

billion of Puerto Rico

public sector deposits

($2.3 billion

transactional

accounts

and

$170.4

million

time

deposits),

compared

$2.7

billion

December

31,

2021,

which

are

fully

collateralized.

Approximately

25%

the

public

sector

deposits

September

30,

2022

was

from

municipalities

and

municipal

agencies

in Puerto

Rico

and 75%

was from

public

corporations,

the central

government

and

agencies,

and U.S.

federal government

agencies

Puerto

Rico.

The

decrease

was

primarily

decreases

transactional

account

balances

government

public

corporations that reflect, among other things, utilization of federal

funding allocated to Puerto Rico.

addition,

September

30,

2022,

the

Corporation

had

$458.8

million

government

deposits

the

Virgin

Islands

region

(December 31, 2021 - $568.4 million) and $10.1 million in the Florida

region (December 31, 2021 - $9.6 million).

Estimate

Uninsured

Deposits

–

As of

September

30,

2022

and

December

31,

2021,

the estimated

amount

of uninsured

deposits,

excluding brokered

CDs, totaled

$7.9 billion

and $8.9

billion, respectively,

generally representing

the portion

of deposits in

domestic

offices that exceed

the FDIC insurance limit

of $250,000 and amounts

in any other uninsured

deposit account. The balances

presented

September

30,

2022

and

December

31,

2021

include

government

deposits,

which

are

uninsured

but

fully

collateralized

previously mentioned. The

amount of uninsured deposits

is calculated based

on the same methodologies

and assumptions used for

our

bank regulatory reporting requirements adjusted for cash held by

wholly-owned subsidiaries at the Bank.

The following

table presents

by contractual

maturities the

amount of

U.S. time

deposits in

excess of

FDIC insurance

limits (over

$250,000) and other time deposits that are otherwise uninsured as of

September 30, 2022:

(In thousands)

3 months

or less

3 months to

6 months

6 months to

1 year

Over 1

year

Total

U.S. time deposits in excess of FDIC insurance limits

256,295

109,465

134,216

142,877

642,853

Other uninsured time deposits

21,721

9,519

10,702

9,305

51,247

Brokered

CDs

–

Total

brokered

CDs

decreased

$55.2

million

$45.2

million

September

30,

2022,

compared

$100.4

million as of December 31, 2021.

The average remaining term to maturity of the brokered CDs outstanding

as of September 30, 2022 was approximately 1.4 years.

The use of

brokered CDs provides

an efficient

channel for funding

diversification and interest

rate management. Brokered

CDs are

insured by the FDIC up to regulatory limits and can be obtained faster than regular

retail deposits.

Refer to

Net Interest Income

above for information about average balances

of interest-bearing deposits, and the

average interest rate

paid on deposits for the quarters and nine-month periods ended September

30, 2022 and 2021.

Securities

sold

under

agreements

repurchase

The

Corporation’s

investment

portfolio

funded

part

with

repurchase

agreements. The Corporation’s outstanding

securities sold under repurchase agreements amounted to $200 million as of September

30,

2022 and

mature on

January 19,

2025

(December 31,

2021 -

$300 million).

One of

the Corporation’s

strategies has

been the

use of

structured

repurchase agreements

and long-term

repurchase agreements

to reduce

liquidity risk

and manage

exposure to

interest rate

risk

lengthening

the

final

maturities

its

liabilities

while

keeping

funding

costs

reasonable

levels.

addition

these

repurchase

agreements,

the

Corporation

has

been

able

maintain

access

credit

using

cost-effective

sources

such

FHLB

advances.

See

Note

–

Securities

Sold

Under

Agreements

Repurchase,

the

Corporation’s

unaudited

consolidated

financial

statements for the

quarter ended September

30, 2022, for further

details about repurchase agreements

outstanding by counterparty

and

maturities.

Under the

Corporation’s

repurchase agreements,

as is the

case with derivative

contracts, the Corporation

is required to

pledge cash

or qualifying securities to meet margin requirements.

To the extent that the value of

securities previously pledged as collateral declines

due to changes in interest

rates, a liquidity crisis or

any other factor, the

Corporation is required to deposit

additional cash or securities

to meet

its margin

requirements, thereby

adversely affecting

its liquidity.

Given the

quality of

the collateral

pledged, the

Corporation

has not experienced margin calls from counterparties

arising from credit-quality-related write-downs in valuations.

Advances from

the FHLB –

The Bank is

a member of

the FHLB system

and obtains advances

to fund its

operations under a

collateral

agreement with the FHLB that requires the Bank to maintain qualifying

mortgages and/or investments as collateral for advances taken.

As of December

31, 2021, the outstanding

balance of long-term

fixed rate FHLB adva

nces was $200 million.

During the third

quarter

of 2022,

the $200

million in

FHLB advances

outstanding as

of December

31, 2021

matured and

were fully

repaid. As

of September

30, 2022, the Corporation had $1.3 billion fully available for additional

borrowing capacity on FHLB lines of credit.

112

Trust-Preferred

Securities –

In 2004, FBP Statutory

Trusts I and

II, statutory trusts

that are wholly-owned

by the Corporation

and not

consolidated

the

Corporation’s

financial

statements,

sold

institutional

investors

variable-rate

TRuPs

and

used

the

proceeds

these issuances, together

with the proceeds

of the purchases by

the Corporation of

variable rate common

securities, to purchase

junior

subordinated

deferrable

debentures.

The

subordinated

debentures

are

presented

the

Corporation’s

consolidated

statements

financial condition as

other borrowings. As of

each of September

30, 2022 and December

31, 2021, the

Corporation had subordinated

debentures

outstanding

the

aggregate

amount

$183.8

million

with

maturity

dates

from

June

17,

2034

through

September

20,

2034. See Note 11

– Other Borrowings and

Note 7 – Non-Consolidated Variable

Interest Entities (“VIE”) and Servicing

Assets, in the

Corporation’s unaudited

consolidated financial statements for the quarter ended September 30, 2022

for additional information.

Other Sources of

Funds and Liquidity

- The Corporation’s

principal uses of funds are for

the origination of loans and the repayment

maturing deposits and

borrowings. In connection

with its mortgage banking

activities, the Corporation

has invested in

technology and

personnel to enhance the Corporation’s

secondary mortgage market capabilities.

The enhanced

capabilities improve

the Corporation’s

liquidity profile

as they

allow the

Corporation to

derive liquidity,

if needed,

from the sale

of mortgage loans

in the secondary

market. The U.S. (including

Puerto Rico) secondary

mortgage market is

still highly-

liquid, in

large part

because of

the sale

of mortgages

through guarantee

programs of

the FHA,

VA,

U.S. Department

of Housing

and

Urban Development

(“HUD”), FNMA and

FHLMC. During

the first nine

months of

2022, loans pooled

into GNMA MBS

amounted

approximately

$115.7

million.

Also,

during

the

first

nine

months

2022,

the

Corporation

sold

approximately

$90.8

million

performing residential mortgage loans to FNMA and FHLMC.

The Primary

Credit FED Discount

Window Program

is a cost-efficient

contingent source

of funding

for the Corporation

in highly-

volatile

market

conditions.

As previously

mentioned,

although

currently

not

use,

as of

September

30,

2022,

the

Corporation

had

approximately $1.2 billion available for funding under the FED’s

BIC Program.

Effect of Credit Ratings on Access to Liquidity

The

Corporation’s

liquidity

contingent

upon

its

ability

obtain

external

sources

funding

finance

its

operations.

The

Corporation’s

current credit

ratings and any

downgrade in credit

ratings can hinder

the Corporation’s

access to new

forms of external

funding

and/or

cause

external

funding

expensive,

which

could,

turn,

adversely

affect

its

results

operations.

Also,

changes in

credit ratings

may further

affect the

fair value

of unsecured

derivatives whose

value takes

into account

the Corporation’s

own credit risk.

The Corporation

does not

have any

outstanding debt

or derivative

agreements that

would be

affected by

credit rating

downgrades.

Furthermore, given the Corporation’s

non-reliance on corporate debt or

other instruments directly linked in

terms of pricing or volume

to credit

ratings, the

liquidity of

the Corporation

has not been

affected in

any material

way by downgrades.

The Corporation’s

ability

to access new non-deposit sources of funding, however,

could be adversely affected by credit downgrades.

As of

the date

hereof, the

Corporation’s

credit as

a long-term

issuer is

rated BB+

by S&P

and BB

by Fitch.

As of

the date

hereof,

FirstBank’s credit

ratings as a

long-term issuer are

Ba2 by Moody’s,

two notches below Moody’s

minimum Baa3 level required

to be

considered investment grade; BB+ by S&P,

one notch below S&P’s minimum

BBB- level required to be considered investment grade;

and

Fitch,

two

notches

below

Fitch’s

minimum

BBB-

level

required

considered

investment

grade.

The

Corporation’s

credit

ratings

are

dependent

number

factors,

both

quantitative

and

qualitative,

and

are

subject

change

any

time.

The

disclosure of

credit ratings

is not a

recommendation to

buy,

sell or

hold the

Corporation’s

securities. Each

rating should

be evaluated

independently of any other rating.

Cash Flows

Cash and cash

equivalents were $555.0

million as of

September 30, 2022,

a decrease of $2.0

billion when compared

to the balance

December

31,

2021.

The

following

discussion

highlights

the

major

activities

and

transactions

that

affected

the

Corporation’s

cash flows during the first nine months of 2022 and 2021.

Cash Flows from Operating Activities

First BanCorp.’s

operating assets and

liabilities vary significantly

in the normal course

of business due

to the amount and

timing of

cash flows.

Management

believes that

cash flows

from operations,

available

cash balances

and

the Corporation’s

ability to

generate

cash through short- and

long-term borrowings will be sufficient

to fund the Corporation’s

operating liquidity needs for

the foreseeable

future.

113

For

the

first

nine

months

2022

and

2021,

net

cash

provided

operating

activities

was

$334.8

million

and

$303.6

million,

respectively.

Net cash

generated from

operating activities

was higher

than reported

net income

largely as

a result

of adjustments

for

items such as depreciation and amortization, as well as cash generated from

sales of loans held for sale.

Cash Flows from Investing Activities

The Corporation’s

investing activities

primarily relate

to originating

loans to

be held

for investment,

as well

as purchasing,

selling

and

repaying

available-for-sale

and

held-to-maturity debt

securities. For

the nine

-month period

ended September

30, 2022

net cash

used

investing

activities

was

$508.2

million,

primarily

due

purchases

U.S.

agencies

debentures

and

MBS

and

net

disbursements

loans

held

for

investment,

partially

offset

prepayments

U.S.

agencies

MBS

and

proceeds

from

sales

commercial loan participations.

For

the

nine-month

period

ended

September

30,

2021,

net

cash

used

investing

activities

was

$1.5

billion,

primarily

due

purchases

U.S.

agencies

investment

securities

and

liquidity

used

fund

commercial

and

consumer

loan

originations,

partially

offset by principal

collected on loans and

U.S. agencies MBS prepayments,

as well as proceeds

from U.S. agencies

bonds called prior

to maturity and the bulk sale of residential mortgage nonaccrual loans.

Cash Flows from Financing Activities

The Corporation’s

financing activities primarily

include the receipt

and withdrawals

of deposits and

the issuance of

brokered CDs,

the issuance of and

payments on long-term debt,

the issuance of equity

instruments and activities related

to its short-term funding.

For

the first

nine months of

2022, net

cash used

in financing

activities was $1.8

billion, mainly

reflecting a

decrease in

total deposits,

the

repayment

at maturity

of a

$100 million

repurchase agreement

and

$200 million

of FHLB

advances,

the repurchase

of 15.9

million

shares of common

stock for a

total purchase

price of

approximately $225.0

million, and the

payment of

$65.8 million

in dividends to

common stock shareholders.

For the

first nine

months of

2021, net

cash provided

by financing

activities was

$2.3 billion,

mainly reflecting

an increase

in non-

brokered deposits,

partially offset

by dividends

paid on

common and

preferred stock,

repurchases of

outstanding common

stock, and

repayment of matured brokered CDs and FHLB advances.

114

Capital

As of

September 30,

2022, the

Corporation’s

stockholders’ equity

was $1.3

billion, a

decrease of

$836.4 million

from December

31, 2021. The decrease

was driven by a $778.7

million decline in the fair

value of available-for-sale debt securities

recorded as part of

accumulated other

comprehensive loss

in the

consolidated statements

of financial

condition, as

a result

of changes

in market

interest

rates. The

decrease

also reflects

the repurchase

of approximately

15.9

million

shares of

common

stock for

a total

purchase price

$225 million, and common

stock dividends declared during the

first nine months of 2022 totaling

$65.9 million (or $0.34 per common

share), partially offset by earnings generated in the

first nine months of 2022.

On October 27,

2022 the

Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.12 per

common share

payable

on December 9, 2022 to shareholders

of record at the close of business

on November 25, 2022. The

Corporation intends to continue to

pay quarterly dividends

on common stock.

The Corporation’s

common stock dividends,

including the declaration,

timing and amount,

remain subject to the consideration and approval by the Corporation’s

Board of Directors at the relevant times.

During the first

quarter of 2022,

the Corporation completed

its prior $300

million stock repurchase

program announced in

2021 by

purchasing through open market

transactions 3.4 million shares

of its common stock

for the $50 million remaining

in the program. On

April

27,

2022,

the

Corporation

announced

that

its

Board

Directors

approved

new

stock

repurchase

program,

under

which

the

Corporation may

repurchase up

to $350

million of

its outstanding

common stock,

expected to

be executed

over four

quarters, which

commenced

the

second

quarter

2022.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with

Rule

10b5-1

under the Exchange Act.

The Corporation’s

stock repurchase program is

subject to various factors,

including the Corporation’s

capital

position,

liquidity,

financial

performance

and

alternative

uses

capital,

stock

trading

price,

and

general

market

conditions.

The

repurchase

program

may

modified,

extended,

suspended,

terminated

any

time

the

Corporation’s

discretion.

The

Corporation’s

repurchase

program

does not

obligate

it to

acquire

any

specific

number

shares.

As of

October

31,

2022,

the

Corporation has

repurchased approximately

14.1 million

shares of common

stock for

a total purchase

price of $200

million under

the

$350

million

stock repurchase

program

approved

in April

2022.

The Parent

Company

has no

operations

and depends

on dividends,

distributions and

other payments

from its

subsidiaries to

fund dividend

payments, stock

repurchases, and

to fund

all payments

on its

obligations, including debt obligations.

The tangible common

equity ratio and

tangible book value

per common share

are non-GAAP financial

measures generally used

the

financial

community

evaluate

capital

adequacy.

Tangible

common

equity

total

equity

less

preferred

equity,

goodwill,

and

other

intangible

assets.

Tangible

assets

are

total

assets

less

the

previously

mentioned

intangible

assets.

See

“Basis

Presentation”

below for additional information.

115

The

following

table

reconciliation

the

Corporation’s

tangible

common

equity

and

tangible

assets,

non

GAAP

financial

measures, to total equity and total assets, respectively,

as of September 30, 2022 and December 31, 2021, respectively:

September 30, 2022

December 31, 2021

(In thousands, except ratios and per share information)

Total equity

- GAAP

1,265,333

2,101,767

Goodwill

(38,611)

Purchased credit card relationship intangible

(376)

(1,198)

Core deposit intangible

(22,818)

(28,571)

Insurance customer relationship intangible

(51)

(165)

Tangible common

equity

1,203,477

2,033,222

Total assets - GAAP

18,442,034

20,785,275

Goodwill

(38,611)

Purchased credit card relationship intangible

(376)

(1,198)

Core deposit intangible

(22,818)

(28,571)

Insurance customer relationship intangible

(51)

(165)

Tangible assets

18,380,178

20,716,730

Common shares outstanding

186,258

201,827

Tangible common

equity ratio

6.55%

9.81%

Tangible book

value per common share

6.46

10.07

See

Note

–

Regulatory Matters,

Commitments and

Contingencies for

the

regulatory capital

positions of

the

Corporation and

FirstBank

as of September 30, 2022 and

December

31, 2021,

respectively.

The Banking Law

of the Commonwealth of

Puerto Rico 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

the

legal

surplus

reserve

from

retained

earnings

are

not

available

for

distribution

the

Corporation,

including

for

payment

as dividends

to the

stockholders,

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

the

expenditures

over

receipts

must

charged

against

the

undistributed

profits

the

bank,

and

the

balance,

any,

must

charged against

the legal

surplus reserve,

as a

reduction thereof.

If the

legal surplus

reserve is

not sufficient

to cover

such balance

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. FirstBank’s

legal surplus

reserve,

included as

part of

retained earnings

in the

Corporation’s

consolidated statements

of financial

condition, amounted

to $137.6

million

as of

each of

September 30,

2022 and

December 31,

2021. There

were no

transfers to

the legal

surplus reserve

during the

first nine

months of 2022.

116

Interest

Rate Risk

Management

First

BanCorp.

manages

its

asset/liability

position

limit

the

effects

changes

interest

rates

net

interest

income

and

maintain

stability

profitability

under

varying

interest

rate

scenarios.

The

MIALCO

oversees

interest

rate

risk

and

MIALCO

meetings focus on, among other things, current and expected conditions

in world financial markets, competition and prevailing rates in

the local

deposit market,

liquidity,

loan originations

pipeline, securities

market values,

recent or

proposed changes

to the

investment

portfolio, alternative

funding sources

and related

costs, hedging

and the possible

purchase of

derivatives such

as swaps and

caps, and

any

tax

regulatory

issues

which

may

pertinent

these

areas.

The

MIALCO

approves

funding

decisions

considering

the

Corporation’s overall strategies and

objectives.

quarterly

basis,

the

Corporation

performs

consolidated

net

interest

income

simulation

analysis

estimate

the

potential

change

future

earnings

from

projected

changes

interest

rates.

These

simulations

are

carried

out

over

one-to-five-year

time

horizon, assuming upward

and downward yield

curve shifts. The

rate scenarios considered

in these disclosures

reflect gradual upward

and downward

interest rate

movements of

200 basis points

(“bps”) during

a twelve-month

period. Simulations

are carried

out in

two

ways:

(1) Using a static balance sheet, as the Corporation had on the simulation date,

and

(2) Using a dynamic balance sheet based on recent patterns and current strategies.

The balance sheet

is divided into

groups of assets

and liabilities by

maturity or re-pricing

structure and their

corresponding interest

rate

yields

and

costs. As

interest

rates

rise

or fall,

these

simulations

incorporate

expected

future

lending rates,

current and

expected

future funding sources and

costs, the possible exercise of options,

changes in prepayment rates,

deposit decay and other factors,

which

may be important in projecting net interest income.

The

Corporation

uses a

simulation

model

project

future

movements

the

Corporation’s

balance

sheet

and

income

statement.

The

starting

point

the

projections

corresponds

the

actual

values

the

balance

sheet

the

date

the

simulations.

These

simulations

are highly

complex

and

are based

on many

assumptions that

are intended

to reflect

the general

behavior of

the balance

sheet components over

the modeled periods. It

is unlikely that actual

events will match these

assumptions in all cases.

For this reason,

the results

of these

forward-looking computations

are only

approximations of

the true

sensitivity of

net interest

income to

changes in

market

interest

rates.

Several

benchmark

and

market

rate

curves

were

used

the

modeling

process,

primarily

the

LIBOR/SWAP

curve,

SOFR

curve,

Prime

Rate,

U.S.

Treasury

yield

curve,

FHLB

rates,

brokered

rates,

repurchase

agreement

rates,

and

the

mortgage commitment rate of 30 years.

As of September 30,

2022, the Corporation forecasted

the 12-month net interest

income assuming September

30, 2022 interest rate

curves remain

constant. Net interest

income was then

estimated under rising

and falling rate

scenarios. For

the rising rates

scenario, a

gradual

(ramp)

parallel

upward

shift

the

yield

curve

is assumed

during

the

first

twelve

months

(the

“+200

bps

ramp”

scenario).

Conversely,

for

the

falling

rates

scenario,

gradual

(ramp)

parallel

downward

shift

the

yield

curve

assumed

during

the

first

twelve months (the “-200 bps ramp” scenario).

The

LIBOR/Swap

rates

for

September

30,

2022,

compared

the

January

31,

2022

rates

used

for

the

December

31,

2021

sensitivity,

reflected an

increase in

the short-term

sector of

the curve,

that is

between one

to twelve

months, of

355 bps

on average;

while market rates

increased in the

medium-term sector of

the curve, that is

between 2 to 5

years, by 276

bps. In the long-term

sector,

that

over

5-year

maturities,

market

rates

increased

198

bps

compared

January

31,

2022.

similar

pattern

market

rates

changes were

observed in the

Treasury curve

for both the

short and long-term

maturities as mentioned

above with a

317 bps increase

in the short-term

sector and a 190

bps increase in the

long-term sector.

This results in a

projected increase in

the base simulation

used

for the sensitivity.

117

The following table presents the results of the simulations as of September 30,

2022 and December 31, 2021.

Consistent with prior

years, these exclude non-cash changes in the fair value of derivatives:

September 30, 2022

December 31, 2021

Net Interest Income Risk

(Projected for the next 12 months)

Static Simulation

Growing Balance Sheet

Static Simulation

Growing Balance Sheet

(Dollars in millions)

$ Change

% Change

$ Change

% Change

$ Change

% Change

$ Change

% Change

+ 200 bps ramp

19.1

2.28

22.9

2.67

34.5

4.81

39.1

5.17

- 200 bps ramp

(24.8)

(2.96)

(26.9)

(3.14)

(12.2)

(1.70)

(13.5)

(1.78)

The Corporation

continues to

manage

its balance

sheet structure

to control

and limit

the overall

interest rate

risk

by managing

its

asset

composition

and

improving

the

funding

mix,

mainly

pursuing

stable

core

deposits,

and

reducing

wholesale

funds,

while

maintaining

sound

liquidity

position.

September

30,

2022

and

December

31,

2021,

the

simulations

showed

that

the

Corporation continues to have an asset-sensitive position.

As of September 30,

2022, the net interest income

for the next twelve months

under a non-static

balance sheet scenario

is estimated to

increase

by $22.9

million

in the

rising rate

scenario,

when compared

against

the base

simulation.

The

decrease

in net

interest

income

sensitivity

for

the

+200

bps

ramp

scenario,

as compared

to December

31,

2021,

is primarily

driven by the size and mix of the

balance sheet and the changes in market

interest rates. As of September 30, 2022

the starting point of

the simulation

reflects lower

balances in

more sensitive

assets such

as cash

and cash

equivalents as

a result

of the

overall decline

total

deposits,

the

deployment

liquidity

fund

the

investment

securities

portfolio,

the

loan

portfolio

growth,

the

repayment

wholesale funding, and the repurchase of shares of common stock.

Under the falling rate,

non-static scenario the net interest income is

estimated to decrease $26.9 million. As

market

rates

shift

away

from

historically

low,

near

zero

interest

rate

levels,

allows

for

full

downward

interest

rate

shifts

under

the

-200

bps

scenario

resulting in the increase in net interest income sensitivity for the -200

bps ramp.

Derivatives

First

BanCorp.

uses derivative

instruments

and

other

strategies

manage

its exposure

interest

rate

risk

caused

changes

interest

rates

beyond

management’s

control.

The

use

derivatives

involves

market

and

credit

risk.

The

market

risk

derivatives

stems principally

from the potential

for changes

in the value

of derivative

contracts based on

changes in interest

rates. The credit

risk

derivatives

arises

from

the

potential

for

default

the

counterparty.

manage

this

credit

risk,

the

Corporation

deals

with

counterparties

that

considers

good

credit

standing,

enters

into

master

netting

agreements

whenever

possible

and,

when

appropriate, obtains collateral.

September

30,

2022

and

December

31,

2021,

the

Corporation

considered

all

its derivative

instruments

undesignated

economic hedges. As

of September 30, 2022,

the aggregate balance

of derivative assets was

$1.2 million, compared

to $1.5 million as

of December

31, 2021.

As of

September 30,

2022, the

aggregate balance

of derivative

liabilities was

$0.5 million,

compared to

$1.2

million as

of December

31, 2021.

Derivative instruments

include interest

rate swap

agreements, interest

rate caps,

forward contracts,

interest

rate

lock

commitments,

and

forward

loan

sales

commitments.

For

detailed

information

regarding

the

volume

derivative

activities

(e.g.,

notional

amounts),

location

and

fair

values

derivative

instruments

the

consolidated

statements

financial

condition as of December 31,

2021 and the amount of

gains and losses reported in

the consolidated statements of income

during 2021,

see Note 34 – Derivative Instruments and Hedging Activities included in

the 2021 Annual Report on Form 10-K.

118

Credit Risk

Management

First

BanCorp. is

subject to

credit

risk

mainly

with

respect to

its

portfolio of

loans

receivable and

off-balance-sheet instruments,

principally

loan commitments.

Loans receivable

represents

loans that First

BanCorp. holds

for investment

and, therefore,

First BanCorp.

at risk

for the

term of

the loan.

Loan commitments represent commitments to extend

credit, subject to

specific conditions, for specific

amounts and maturities. These commitments

may expose the Corporation to credit risk and are

subject to the same review and approval

process as

for loans made

by the Bank.

See “Liquidity

Risk and Capital

Adequacy”

above for further

details.

The Corporation

manages its

credit

risk

through

its

credit

policy,

underwriting,

independent

loan

review

and

quality

control

procedures,

statistical

analysis,

comprehensive financial analysis,

and established management committees. The Corporation also employs proactive collection and loss

mitigation

efforts.

Furthermore, personnel

performing

structured

loan

workout

functions

are

responsible for

mitigating defaults

and

minimizing

losses upon

default

within each

region and

for each business

segment.

In the case

of the commercial

and industrial,

commercial

mortgage and construction loan portfolios, the Special Asset Group (“SAG”) focuses on

strategies for the accelerated reduction

of non-

performing assets through note sales,

short sales, loss

mitigation programs, and sales of

OREO.

In addition to

the management of

the

resolution process

for

problem loans,

the

SAG

oversees collection efforts

for

all

loans to

prevent migration

the

nonaccrual and/or

adversely

classified

status.

The SAG

utilizes

relationship

officers,

collection

specialists

and attorneys.

The Corporation

may also

have risk

of default

in the securities

portfolio.

The securities

held by the

Corporation

are principally

fixed-rate

U.S. agency MBS and

U.S. Treasury and agencies securities. Thus, a substantial portion of these instruments is backed by mortgages, a

guarantee

of a U.S.

GSE or the

full faith

and credit

of the U.S.

government.

Management, consisting of the

Corporation’s Commercial Credit Risk

Officer, Retail

Credit Risk Officer,

Chief Credit Officer,

and

other senior executives, has the primary responsibility

for setting strategies to achieve the Corporation’s credit risk goals and objectives.

Management

has documented

these goals

and objectives

in the

Corporation’s

Credit Policy.

119

Allowance

for Credit

Losses and

Non-performing

Assets

Allowance

for Credit

Losses for

Loans and

Finance Leases

The ACL

for loans

and finance

leases represents

the estimate

of the

level of

reserves appropriate

to absorb

expected credit

losses

over the estimated life of the

loans. The amount of the allowance

is determined using relevant available

information, from internal and

external sources, relating to past events, current conditions, and

reasonable and supportable forecasts.

Historical credit loss experience

significant

input

for

the

estimation

expected

credit

losses,

well

adjustments

historical

loss

information

made

for

differences in current loan-specific

risk characteristics, such as differences

in underwriting standards, portfolio mix,

delinquency level,

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.

Such

factors are

subject to

regular review

and may

change to

reflect updated

performance trends

and expectations,

particularly in

times of

severe

stress.

The

process

includes

judgments

and

quantitative

elements

that

may

subject

significant

change.

Further,

the

Corporation periodically considers the need for qualitative

reserves to the ACL. Qualitative adjustments may be

related to and include,

but are

not limited

to, factors

such as

the following:

(i) management’s

assessment of

economic forecasts

used in

the model

and how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization

specific

risks such

as credit

concentrations,

collateral

specific risks,

nature

and

size of

the portfolio

and

external

factors that

may

ultimately

impact credit quality,

and (iii) other limitations associated

with factors such as

changes in underwriting

and loan resolution strategies,

among others.

The ACL

for loans

and finance

leases is

reviewed at

least on

a quarterly

basis as

part of

the Corporation’s

continued

evaluation of its asset quality.

previously

mentioned,

September

17,

2022,

Hurricane

Fiona

made

landfall

the

southwestern

part

Puerto

Rico

Category 1

storm. As

part of

its ACL

calculation, the

Corporation

considers the

need for

qualitative adjustments

that include

factors

such as

natural disasters.

As of

September 30,

2022, management

determined

that no

separate

qualitative reserves

of the

ACL were

required.

Notwithstanding,

estimates

the

storm’s

effect

loan

losses

may

change

over

time

additional

information

becomes

available and any related revisions in the ACL calculation will be reflected in the provision

for credit losses as they occur.

During

the

first

nine

months

2022,

the

Corporation

applied

probability

weights

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

including continued

conflict

Ukraine,

the

overall

inflationary

environment,

and

potential

slowdown

economic

activity

result

the

FED’s

policy

control inflationary

economic conditions.

For periods

prior to

2022, the

Corporation calculated

the ACL

using the

baseline scenario.

September

30,

2022,

the

Corporation’s

ACL

model

considered

the

following

assumptions

for

key

economic

variables

the

probability-weighted economic scenarios:

●

Average

commercial real

estate price

index forecast

for the

remainder of

2022 and

year 2023

stands at

2.93%, compared

5.16% in the previous forecast.

●

A deterioration of approximately

10.61% in the forecast of

average housing price index

in Puerto Rico (purchase only prices)

for the remainder of 2022 and year 2023, when compared to the previous

forecast.

●

Slight

increase

levels

regional

unemployment

Puerto

Rico

8.15%

for

the

remainder

2022

and

year

2023,

compared to

the previous

forecast of

7.99%. For

the Florida

region and

the U.S.

mainland, slight

increase in

unemployment

rate to 3.90% and 4.60%, respectively,

for the remainder of 2022 and year 2023,

compared to 3.57% and 4.30%, respectively,

in the previous forecast.

●

A slight decrease

in real gross

domestic product

(“GDP”) in the

U.S. mainland

to 0.59%

for the remainder

of 2022

and year

2023,

compared to the previous forecast of 1.83%.

It is difficult to estimate how potential changes

in one factor or input might affect the overall ACL because

management considers a

wide variety of

factors and inputs in

estimating the ACL.

Changes in the

factors and inputs considered

may not occur

at the same rate

and may not be consistent

across all geographies or product

types, and changes in factors

and inputs may be directionally

inconsistent,

such that improvement

in one factor

or input may

offset deterioration

in others. However,

to demonstrate the

sensitivity of credit

loss

estimates to macroeconomic

forecasts as of

September 30, 2022,

management compared the

modeled estimates under

the probability-

weighted

economic

scenarios

against

adverse

scenario.

Under

this

adverse

scenario,

example,

average

unemployment

rate

for

the

Puerto

Rico

region

increases

8.74%

for

the

remainder

2022

and

year

2023,

compared

8.15%,

respectively, for the

same periods on the probability-weighted economic scenario projections.

120

demonstrate the sensitivity to

key economic parameters used

in the calculation of

our ACL at September

30, 2022, management

calculated

the

difference

between

our

quantitative

ACL

and

this

adverse

scenario.

Excluding

consideration

qualitative

adjustments,

this sensitivity

analysis would

result in

a hypothetical

increase

in our

ACL of

approximately

$33 million

at September

30, 2022. This

analysis relates only

to the modeled

credit loss estimates and

is not intended

to estimate changes

in the overall

ACL as

does

not

reflect

any

potential

changes

other

adjustments

the

qualitative

calculation,

which

would

also

influenced

the

judgment

management

applies

the

modeled

lifetime

loss

estimates

reflect

the

uncertainty

and

imprecision

these

estimates

based

current

circumstances

and

conditions.

Recognizing

that

forecasts

macroeconomic

conditions

are

inherently

uncertain,

particularly in light

of the recent economic

conditions, management believes

that its process to

consider the available

information and

associated

risks

and

uncertainties

appropriately

governed

and

that

its

estimates

expected

credit

losses

were

reasonable

and

appropriate for the period ended September 30, 2022.

As of September 30,

2022, the ACL for loans

and finance leases was $257.9

million, down $11.1

million from December 31,

2021.

The

reduction

the

ACL

for

commercial

and

construction

loans

was

$23.5

million,

primarily

reflecting

reduced

COVID-19

uncertainties and, to a lesser extent, a reduction in qualitative reserves due

to updated borrowers’ financial information received during

the third

quarter of

2022. In

addition, the

ACL for

residential mortgage

loans decreased

by $9.7

million, primarily

due to

the overall

reduction in the

size of this

portfolio. The aforementioned

ACL reductions

were partially offset

by an increase

of $22.1 million

in the

ACL for consumer loans, mainly reflecting the effect

of the increase in the size of the consumer loan portfolios,

the increase in charge-

off levels

associated to the

overall portfolio

growth and

a less positive

long-term outlook

of certain

macroeconomic variables

such as

the regional

unemployment rate,

as a

result of

the aforementioned

economic uncertainties.

Refer to

Note 1

- Nature

of Business

and

Summary of Significant Accounting Policies, in the 2021

Annual Report on Form 10-K for a description of

the methodologies used by

the Corporation to determine the ACL.

The ratio

of the ACL

for loans and

finance leases

to total

loans held

for investment

decreased to

2.28% as

of September

30, 2022,

compared to 2.43% as of December 31, 2021. An explanation for the change for

each portfolio follows:

●

The ACL to total

loans ratio for the

residential mortgage loan

portfolio decreased from

2.51% as of December

31, 2021 to

2.30%

as of

September 30,

2022, primarily

due to

improvements in

the long-term

outlook of

forecasted macroeconomic

variables, such

as the

housing price

index, during

the first

six months

of 2022,

partially offset

by a

slight deterioration

these variables during the third quarter of 2022.

●

The ACL

to total

loans ratio

for the

commercial mortgage

loan portfolio

decreased from

2.43% as

of December

31, 2021

1.34%

September

30,

2022,

primarily

reflecting

reduced

COVID-19

uncertainties

and,

lesser

extent,

reduction in qualitative reserves due to updated borrowers’ financial information

received during the third quarter of 2022.

●

The ACL

to total

loans ratio

for the

commercial and

industrial portfolio

was 1.24%

as of

September 30,

2022, remained

relatively flat when compared to 1.19% as of December 31, 2021.

●

The ACL

to total

loans ratio for

the construction

loan portfolio

decreased from

2.91% as

of December

31, 2021

to 1.47%

as of September

30, 2022, primarily

reflecting reductions in

qualitative reserves mostly

associated to previously

-identified

specific risks for a construction project in Florida that were resolved during the first quarter

of 2022.

●

The ACL

to total

loans ratio

for the

consumer loan

portfolio increased

from 3.57%

as of December

31, 2021

to 3.89% as

of September

30, 2022, primarily

associated to

a less positive

long-term outlook

on certain

macroeconomic variables

as a

result of economic uncertainties previously discussed.

The ratio

of the

total ACL

to nonaccrual

loans held

for investment

was 264.43%

as of

September 30,

2022, compared

to 242.99%

as of December 31, 2021.

Substantially all of

the Corporation’s

loan portfolio is

located within the

boundaries of the

U.S. economy.

Whether the collateral

located in Puerto Rico, the U.S. and British Virgin

Islands or the U.S. mainland (mainly in the state of

Florida), the performance of the

Corporation’s

loan

portfolio

and

the

value

the

collateral

supporting

the

transactions

are

dependent

upon

the

performance

and

conditions

within each

specific area’s

real estate

market. The

Corporation believes

it sets

adequate loan-to-value

ratios following

its

regulatory and credit policy standards.

As shown

in the

following tables,

the ACL

for loans

and finance

leases amounted

to $257.9

million as

of September

30, 2022,

2.28% of

total loans,

compared with

$288.4 million,

or 2.59% of

total loans,

as of

September 30,

2021 and

$269.0 million,

or 2.43%

of total loans, as of December 31, 2021. See “Results of Operations -

Provision for Credit Losses” above for additional information.

121

Quarter Ended

Nine-Month Period Ended

September 30,

(Dollars in thousands)

2022

2021

2022

2021

ACL for loans and finance leases, beginning of period

252,152

324,958

269,030

385,887

Provision for credit losses - expense (benefit):

Residential mortgage

755

(6,206)

(6,913)

(9,556)

Commercial mortgage

(2,383)

(4,660)

(23,758)

(40,779)

Commercial and Industrial

(1,228)

(4,449)

(575)

(10,187)

Construction

(179)

527

(2,242)

(125)

Consumer and finance leases

17,387

6,054

43,516

11,168

Total provision for credit losses - expense (benefit)

14,352

(8,734)

10,028

(49,479)

Charge-offs:

Residential mortgage

(1,466)

(25,418)

(1)

(6,073)

(31,170)

(1)

Commercial mortgage

(3)

(429)

(42)

(1,304)

Commercial and Industrial

(8)

(167)

(366)

(1,036)

Construction

(63)

(7)

(123)

(52)

Consumer and finance leases

(12,522)

(8,345)

(32,765)

(34,904)

Total charge-offs

(14,062)

(34,366)

(39,369)

(68,466)

Recoveries:

Residential mortgage

559

1,968

3,228

3,641

Commercial mortgage

1,319

147

Commercial and Industrial

494

2,118

6,627

Construction

138

116

Consumer and finance leases

4,264

3,955

11,367

9,887

Total recoveries

5,417

6,502

18,170

20,418

Net charge-offs

(8,645)

(27,864)

(21,199)

(48,048)

ACL for loans and finance leases, end of period

257,859

288,360

257,859

288,360

ACL for loans and finance leases to period-end total loans

held for investment

2.28

2.59

2.28

2.59

Net charge-offs (annualized) to average loans outstanding during the period

0.31

0.99

(2)

0.25

0.56

(2)

Provision for credit losses - expense (benefit) for loans and finance

leases to net

charge-offs during the period

1.66x

-0.31x

0.47x

-1.03x

(1)

Includes net charge-offs totaling $23.1 million associated with the bulk sale of residential mortgage nonaccrual loans and related servicing advance receivables.

(2)

Excluding net charge-offs associated with the bulk sale, total net charge-offs for the third quarter and first nine months of 2021 was 0.17% and 0.29%, respectively.

122

The following table

sets forth information

concerning the allocation

of the Corporation's ACL

for loans and

finance leases by loan

category and the percentage of loan balances in each category to the total of

such loans as of the indicated dates:

As of

September 30, 2022

December 31, 2021

(Dollars in thousands)

Amount

Percent of loans in

each category to

total loans

Amount

Percent of loans in

each category to

total loans

Residential mortgage loans

65,079

74,837

Commercial mortgage loans

30,290

52,771

Commercial and Industrial loans

35,461

34,284

Construction loans

1,821

4,048

Consumer loans and finance leases

125,208

103,090

257,859

100

269,030

100

The following tables set forth information concerning the composition of the

Corporation's loan portfolio and related ACL as of

September 30, 2022 and December 31, 2021 by loan category:

As of September 30, 2022

Residential

Mortgage Loans

Commercial

Mortgage Loans

Consumer and

Finance Leases

Construction

Loans

(Dollars in thousands)

C&I Loans

Total

Total loans held for investment:

Amortized cost of loans

2,830,974

2,265,614

2,858,286

123,994

3,219,750

11,298,618

Allowance for credit losses

65,079

30,290

35,461

1,821

125,208

257,859

Allowance for credit losses to amortized

cost

2.30

1.34

1.24

1.47

3.89

2.28

As of December 31, 2021

Residential

Mortgage Loans

Commercial

Mortgage Loans

Consumer and

Finance Leases

Construction

Loans

(Dollars in thousands)

C&I Loans

Total

Total loans held for investment:

Amortized cost of loans

2,978,895

2,167,469

2,887,251

138,999

2,888,044

11,060,658

Allowance for credit losses

74,837

52,771

34,284

4,048

103,090

269,030

Allowance for credit losses to amortized

cost

2.51

2.43

1.19

2.91

3.57

2.43

123

Allowance

for Credit

Losses for

Unfunded

Loan Commitments

The Corporation estimates

expected credit losses

over the contractual

period in which

the Corporation is

exposed to credit

risk as a

result

contractual

obligation

extend

credit,

such as

pursuant

to unfunded

loan

commitments

and

standby

letters of

credit

for

commercial and

construction loans,

unless the

obligation is

unconditionally cancellable

by the

Corporation. The

ACL for

off-balance

sheet

credit

exposures

adjusted

provision

for

credit loss

expense.

September

30,

2022,

the

ACL

for

off-balance

sheet

credit

exposures

was

$4.2

million,

$2.7

million

from

$1.5

million

December

31,

2021,

mainly

driven

increase

unfunded loan commitments principally due to newly originated facilities which

remained undrawn as of September 30, 2022.

Allowance for Credit Losses for Held-to-Maturity

Debt Securities

September

30,

2022,

the

ACL

for

held-to-maturity

debt

securities

portfolio

was

entirely

financing

arrangements

with Puerto Rico municipalities issued

in bond form, which the

Corporation accounts for as securities,

but which were underwritten

loans

with

features

that

are

typically

found

commercial

loans.

September

30,

2022,

the

ACL

for

held-to-maturity

debt

securities was $8.3 million, compared to $8.6 million as of December 31,

2021.

Allowance for Credit Losses for Available

-for-Sale Debt Securities

The

ACL

for

available-for-sale

debt

securities,

which

associated

with

private

label

MBS

and

residential

pass-through

MBS

issued by the PRHFA, was $0.7

million as of September 30, 2022, compared to $1.1 million as of December 31,

2021. The decrease in

the ACL is mostly related to a continued positive long-term outlook

of forecasted macroeconomic variables.

124

Nonaccrual Loans and Non-performing Assets

Total

non-performing

assets consist

nonaccrual

loans (generally

loans held

for

investment

or loans

held

for

sale on

which

the

recognition of

interest income

was discontinued

when the

loan became

90 days

past due

or earlier

if the

full and

timely collection

interest or principal

is uncertain), foreclosed

real estate and

other repossessed properties,

and non-performing

investment securities,

any.

When a

loan is placed

in nonaccrual

status, any

interest previously

recognized and

not collected

is reversed

and charged

against

interest

income.

Cash

payments

received

are

recognized

when

collected

accordance

with

the

contractual

terms

the

loans.

The

principal

portion

of the

payment is

used to

reduce

the principal

balance

of the

loan,

whereas the

interest portion

is recognized

on a

cash basis

(when collected).

However,

when management

believes that

the ultimate

collectability of

principal is

in doubt,

the interest

portion

applied

the

outstanding

principal.

The

risk

exposure

this

portfolio

diversified

individual

borrowers

and

industries, among other factors. In addition, a large portion

is secured with real estate collateral.

Nonaccrual Loans Policy

Residential Real Estate Loans

— The Corporation generally classifies real estate loans in nonaccrual

status when it has not received

interest and principal for a period of 90 days or more.

Commercial

and

Construction

Loans

—

The

Corporation

classifies

commercial

loans

(including

commercial

real

estate

and

construction loans) in nonaccrual

status when it has not

received interest and principal

for a period of 90

days or more or when

it does

not expect to collect all of the principal or interest due to deterioration in the financial condition

of the borrower.

Finance Leases

— The Corporation

classifies finance leases

in nonaccrual status

when it has not

received interest and

principal for

a period of 90 days or more.

Consumer Loans

— The Corporation

classifies consumer

loans in nonaccrual

status when it

has not received

interest and

principal

for a period of 90 days or more. Credit card loans continue to accrue

finance charges and fees until charged-off

at 180 days delinquent.

Purchased

Credit Deteriorated

(“PCD”) Loans

— For

PCD loans,

the nonaccrual

status is

determined in

the same

manner as

for

other loans,

except for

PCD loans

that prior

to the

adoption of

CECL were

classified as

purchased credit

impaired (“PCI”)

loans and

accounted

for

under

ASC

Subtopic

310-30,

“Receivables

–

Loans

and

Debt

Securities

Acquired

with

Deteriorated

Credit

Quality”

(ASC Subtopic 310

-30). As allowed

by CECL, 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. Regarding interest income recognition,

the prospective

transition approach for PCD loans was applied at a pool level, which

froze the effective interest rate of the pools as of January

1, 2020.

According

regulatory

guidance,

the

determination

nonaccrual

accrual

status

for

PCD

loans

with

respect

which

the

Corporation

has

made

policy

election

maintain

previously

existing

pools

upon

adoption

CECL

should

made

the

pool

level,

not

the

individual

asset

level.

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

the use

in operations

or improving

the collateral

for resale.

Thus, the

Corporation

continues to exclude these pools of PCD loans from nonaccrual loan statistics.

Other Real Estate Owned

OREO

acquired

settlement

loans

carried

the

lower

cost

fair

value

less

estimated

costs

sell

off

the

real

estate.

Appraisals are obtained periodically,

generally on an annual basis.

125

Other Repossessed Property

The

other

repossessed

property

category

generally

included

repossessed

boats

and

autos

acquired

settlement

loans.

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

Other Non-Performing Assets

This

category

consisted

of a

residential

pass-through

MBS

issued

the

PRHFA placed

non-performing

status

the

second

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

mortgage loans.

Loans Past-Due 90 Days and Still Accruing

These are accruing loans

that are contractually delinquent

90 days or more. These

past-due loans are either

current as to interest but

delinquent

as to

the payment

principal

or are

insured

or guaranteed

under

applicable FHA,

VA,

other

government-guaranteed

programs for residential mortgage loans. Furthermore,

as required by instructions in regulatory reports, loans past due

90 days and still

accruing

include

loans

previously

pooled

into

GNMA

securities

for

which

the

Corporation

has

the

option

but

not

the

obligation

repurchase loans

that meet

GNMA’s

specified delinquency

criteria (

e.g.

, borrowers

fails to

make any

payment for

three consecutive

months).

For accounting

purposes,

these

GNMA

loans

subject to

the repurchase

option are

required

to be

reflected

on the

financial

statements with

an offsetting

liability.

In addition,

loans past

due 90

days and

still accruing

include PCD

loans, as

mentioned above,

and credit cards that continue accruing interest until charged-off

at 180 days.

TDRs are

classified

as either

accrual

or nonaccrual

loans. A

loan

on nonaccrual

status and

restructured

as a

TDR will

remain

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.

The Corporation

considers performance

prior to the restructuring, or significant events that coincide with the restructuring,

in assessing whether the borrower can meet the new

terms,

which

may

result

the

loan

being

returned

accrual

status

the

time

the

restructuring

after

shorter

performance

period. If the borrower’s ability to meet the revised payment schedule

is uncertain, the loan remains classified as a nonaccrual loan.

126

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

September 30,

December 31,

(Dollars in thousands)

2022

2021

Nonaccrual loans held for investment:

Residential mortgage

43,036

55,127

Commercial mortgage

23,741

25,337

Commercial and Industrial

15,715

17,135

Construction

2,237

2,664

Consumer and finance leases

12,787

10,454

Total nonaccrual loans held for investment

97,516

110,717

OREO

38,682

40,848

Other repossessed property

4,936

3,687

Other assets

(1)

2,193

2,850

Total non-performing assets

(2) (3)

143,327

158,102

Past due loans 90 days and still accruing

(2) (4) (5)

81,790

115,448

Non-performing assets to total assets

0.78

0.76

Nonaccrual loans held for investment to total loans held for investment

0.86

1.00

ACL for loans and finance leases

257,859

269,030

ACL for loans and finance leases to total nonaccrual loans held for investment

264.43

242.99

ACL for loans and finance leases to total nonaccrual loans held for investment,

excluding residential real estate loans

473.31

483.95

(1)

Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities

portfolio.

(2)

Excludes 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 amounted to $12.8

million and $20.6 million as of September 30,

2022 and December 31, 2021, respectively.

(3)

Nonaccrual loans exclude $340.1 million and $363.4 million

of TDR loans that were in compliance with the modified

terms and in accrual status as of September

30, 2022 and December 31, 2021, respectively.

(4)

Includes FHA/VA government-guaranteed residential mortgage loans as loans past-due 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 $31.0 million and $46.6 million of FHA

government-guaranteed residential mortgage loans that were

over 15 months delinquent as of

September 30, 2022 and December 31, 2021, respectively.

(5)

Includes rebooked loans, which were previously pooled into GNMA

securities, amounting to $8.0 million and $7.2 million

as of September 30, 2022 and

December 31, 2021, respectively. Under the GNMA program, the Corporation has the option but

not the obligation to repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes, the

loans subject to the repurchase option are required to

be reflected on the financial statements with an

offsetting liability.

127

Total

nonaccrual loans

were $97.5

million as

of September

30, 2022.

This represents

a net

decrease of

$13.2 million

from $110.7

million

December

31,

2021.

The

net

decrease

was

primarily

$12.1

million

decrease

nonaccrual

residential

mortgage

loans,

mostly

driven

loans

restored

accrual

status

and

collections,

including

the

payoff

individual

loan

approximately $1.3 million

during the first nine months

of 2022. In addition, nonaccrual

commercial and construction loans decreased

by $3.4

million. These

variances were

partially offset

by a

$2.3 million

increase in

nonaccrual consumer

loans, mostly

related to

the

continued trend of growth in the auto loan and finance leases portfolios.

The following table shows non-performing assets by geographic segment

as of the indicated dates:

September 30,

December 31,

(In thousands)

2022

2021

Puerto Rico:

Nonaccrual loans held for investment:

Residential mortgage

30,988

39,256

Commercial mortgage

15,269

15,503

Commercial and Industrial

13,564

14,708

Construction

854

1,198

Consumer and finance leases

12,510

10,177

Total nonaccrual loans held for investment

73,185

80,842

OREO

34,626

36,750

Other repossessed property

4,789

3,456

Other assets

2,193

2,850

Total non-performing assets

114,793

123,898

Past due loans 90 days and still accruing

80,249

114,001

Virgin Islands:

Nonaccrual loans held for investment:

Residential mortgage

6,530

8,719

Commercial mortgage

8,472

9,834

Commercial and Industrial

1,313

1,476

Construction

1,383

1,466

Consumer

143

144

Total nonaccrual loans held for investment

17,841

21,639

OREO

4,025

3,450

Other repossessed property

187

Total non-performing assets

21,964

25,276

Past due loans 90 days and still accruing

1,541

1,265

United States:

Nonaccrual loans held for investment:

Residential mortgage

5,518

7,152

Commercial and Industrial

838

951

Consumer

134

133

Total nonaccrual loans held for investment

6,490

8,236

OREO

648

Other repossessed property

Total non-performing assets

6,570

8,928

Past due loans 90 days and still accruing

182

128

Nonaccrual commercial mortgage loans decreased by

$1.5 million to $23.8 million as of September 30, 2022,

from $25.3 million as

of December 31,

2021. The decrease was

primarily associated to

collections, loans transferred

to OREO, and loans

restored to accrual

status

during

the

first

nine

months

2022,

partially

offset

the

migration

nonaccrual

status

$2.9

million

commercial

mortgage loan related to the health care industry in the Puerto Rico region.

Nonaccrual

commercial

and

industrial

loans

decreased

$1.4

million

$15.7

million

September

30,

2022,

from

$17.1

million as

of December

31, 2021.

The decrease

was primarily

associated with

collections and

loans restored

to accrual

status during

the

first

nine

months

2022,

partially

offset

inflows,

including

$1.1

million

commercial

and

industrial

loan

the

entertainment industry in the Puerto Rico region.

Nonaccrual

construction

loans

decreased

$0.5

million

$2.2

million

September

30,

2022

from

$2.7

million

December 31, 2021.

The

following

tables

present

the

activity

commercial

and

construction

nonaccrual

loans

held

for

investment

for

the

indicated

periods:

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Quarter Ended September 30, 2022

Beginning balance

24,753

17,079

2,375

44,207

Plus:

Additions to nonaccrual

179

181

Less:

Loans returned to accrual status

(189)

(75)

(264)

Nonaccrual loans transferred to OREO

(50)

Nonaccrual loans charge-offs

(2)

(8)

(58)

(68)

Loan collections

(821)

(1,460)

(32)

(2,313)

Ending balance

23,741

15,715

2,237

41,693

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Nine-month period ended September 30, 2022

Beginning balance

25,337

17,135

2,664

45,136

Plus:

Additions to nonaccrual

2,934

2,337

5,291

Less:

Loans returned to accrual status

(547)

(539)

(48)

(1,134)

Nonaccrual loans transferred to OREO

(549)

(273)

(130)

(952)

Nonaccrual loans charge-offs

(41)

(335)

(114)

(490)

Loan collections

(2,991)

(3,012)

(155)

(6,158)

Reclassification

(402)

402

Ending balance

23,741

15,715

2,237

41,693

129

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Quarter Ended September 30, 2021

Beginning balance

27,242

18,835

6,175

52,252

Plus:

Additions to nonaccrual

347

1,228

1,597

Less:

Loans returned to accrual status

(187)

(4)

(191)

Nonaccrual loans transferred to OREO

(125)

Nonaccrual loans charge-offs

(375)

(136)

(7)

(518)

Loan collections and others

(264)

(1,721)

(89)

(2,074)

Reclassification

913

962

Nonaccrual loans sold

(8)

Ending balance

26,812

18,990

6,093

51,895

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Nine-month period ended September 30, 2021

Beginning balance

29,611

20,881

12,971

63,463

Plus:

Additions to nonaccrual

4,401

3,603

8,027

Less:

Loans returned to accrual status

(2,090)

(282)

(173)

(2,545)

Nonaccrual loans transferred to OREO

(1,011)

(1,127)

(135)

(2,273)

Nonaccrual loans charge-offs

(1,249)

(280)

(52)

(1,581)

Loan collections

(2,483)

(5,134)

(6,533)

(14,150)

Reclassification

(367)

1,329

962

Nonaccrual

loans sold

(8)

Ending balance

26,812

18,990

6,093

51,895

130

Nonaccrual

residential mortgage

loans decreased

by $12.1

million to

$43.0 million

as of

September 30,

2022, compared

to $55.1

million as of December 31, 2021.

The decrease was primarily related to

loans restored to accrual status of $12.4

million, collections of

$10.3 million,

including the

payoff of

an individual

loan of approximately

$1.3 million,

foreclosures of

$2.6 million,

and charge-offs

of $1.3 million during the first nine months of 2022, partially offset

by inflows.

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

investment for the indicated periods:

Quarter Ended

Nine-Month Period Ended

September 30,

(In thousands)

2022

2021

2022

2021

Beginning balance

44,588

121,695

55,127

125,367

Plus:

Additions to nonaccrual

4,782

6,303

14,513

29,987

Less:

Loans returned to accrual status

(3,630)

(2,620)

(12,411)

(14,127)

Nonaccrual loans transferred to OREO

(495)

(1,827)

(2,617)

(6,282)

Nonaccrual loans charge-offs

(356)

(21,449)

(1)

(1,306)

(25,786)

(1)

Loan collections

(1,853)

(9,036)

(10,270)

(16,093)

Reclassification

(962)

Nonaccrual loans sold

(31,515)

Ending balance

43,036

60,589

43,036

60,589

(1)

For the quarter and nine-month period ended September 30, 2021, includes net charge-offs totaling $23.1 million associated with the bulk sale of

residential mortgage nonaccrual loans and related servicing advance receivables.

The amount of nonaccrual

consumer loans, including finance

leases, increased by $2.3

million to $12.8 million

as of September 30,

2022,

compared to

$10.5 million

as of

December 31,

2021. The

increase was

associated with

the overall

portfolio growth,

especially

in the auto loans and finance leases portfolio.

As of

September

30, 2022,

approximately

$24.2 million

of the

loans placed

in nonaccrual

status, mainly

commercial

loans, were

current,

had

delinquencies

less

than

days

their

interest

payments,

including

$15.1

million

TDRs

maintained

nonaccrual

status

until

the

restructured

loans

meet

the

criteria

sustained

payment

performance

under

the

revised

terms

for

reinstatement to

accrual status

and there

is no

doubt about

full collectability.

Collections on

these loans

are being

recorded on

a cash

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

During

the

nine-month

period

ended

September

30,

2022,

interest

income

approximately

$1.0

million

nonaccrual

loans

with

carrying

value

of $32.6

million

as of

September

30,

2022,

mainly

nonaccrual

construction

and

commercial

loans,

was

applied against the related principal balances under the cost-recovery

method.

131

Total loans in early

delinquency (

i.e.

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

instructions) amounted to $113.9

million as of September 30, 2022, an increase of $23.6 million, compared

to $90.3 million as of December 31, 2021.

The variances by

major portfolio categories were as follows:

●

Consumer loans in early

delinquency increased by $24.5

million to $73.9 million as

of September 30, 2022,

mainly due to an

increase in

auto loans

in early

delinquency,

in part

reflecting disruptions

in regular

payments streams

due to

the passing

Hurricane Fiona through Puerto Rico,

●

Residential mortgage loans in early delinquency decreased by $2.4

million to $31.8 million as of September 30, 2022.

●

Commercial and construction

loans in early

delinquency increased by

$1.5 million to

$8.2 million as of

September 30, 2022,

in part due to a

$1.4 million matured

loan that is in the

process of renewal but

for which the Corporation

continues to receive

principal and interest payments from the borrower.

In addition,

the Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrowers’

financial

condition,

restructurings

loan

modifications

through

this

program,

well

other restructurings of

individual commercial, commercial

mortgage, construction, and

residential mortgage loans,

fit the definition

TDR.

restructuring

debt

constitutes

TDR

the

creditor,

for

economic

legal

reasons

the

debtor’s

financial

difficulties,

grants a

concession to

the debtor

that it

would not

otherwise consider.

Modifications involve

changes in

one or

more of

the

loan

terms

that

bring

defaulted

loan

current

and

provide

sustainable

affordability.

Changes

may

include,

among

others,

the

extension of the

maturity of the loan

and modifications of

the loan rate. As

of September 30,

2022, the Corporation’s

total TDR loans

held

for

investment

amounted

$387.7

million,

decrease

$27.0

million

from

$414.7

million

December

31,

2021.

The

decrease

was

mainly

payoffs

and

paydowns,

partially

offset

inflows

$18.6

million

mainly

concentrated

the

commercial mortgage and residential mortgage loan portfolios during the first

nine months of 2022.

See

Note

Loans

Held

for

Investment

the

Corporation’s

unaudited

consolidated

financial

statements

for

the

quarter

ended

September 30, 2022 for additional information and statistics about

the Corporation’s TDR loans.

assist

borrowers

affected

the

passing

Hurricane

Fiona

through

Puerto

Rico

September

17,

2022,

the

Corporation

established a

Natural Disaster

Deferral or

Extension Program,

with a

term not

to extend

beyond December

31, 2022,

for residents

Puerto Rico that were

directly impacted by the

passing of the hurricane.

This program provides payment

deferral or term extension

a one payment

basis, not to

exceed three payments,

to retail borrowers

(

i.e.

, borrowers with

personal loans, auto

loans, finance leases,

credit

cards

and

residential

mortgage

loans)

that

contacted

the

Corporation

October

31,

2022,

request

the

payment

extension.

Loans will

continue to

accrue interest

during the

deferral or

extension period.

For credit cards,

borrowers who

were 30 days

past due

less

September

16,

2022

are

eligible

for

this

program.

For

residential

mortgage

loans

and

consumer

loans,

borrowers

who

were

days

past

due

less

as of

September

16,

2022

are eligible

for

this program.

For

both

consumer

and

residential

mortgage

loans subject to the deferral

programs, each borrower

is required to opt in

on a monthly basis to

the program and must

resume making

their

regularly

scheduled

loan

payments

the

end

the

deferral

period.

For

consumer

loans,

deferred

amounts

will

extend

the

maturity

date by

the number

deferred

periods.

For residential

mortgage

loans, deferred

amounts

will be

moved

to the

end

of the

loan term.

Borrowers that

make a

payment during

any given

month are

not eligible

for the

program during

that month.

Furthermore,

for customers

that opted

into the program,

the delinquency

status of

loans subject

to the

deferral or

extension program

will be

frozen

in the status that existed in the month prior to the relief granted.

Loans subject

to the above-described

program are not

considered TDRs since

the deferral or

extension is not

considered more than

insignificant.

Borrowers

were

eligible

for

payment

deferral

extension

three

payments

only

cumulative

payment

extensions

granted during

the last 12

months did not

exceed six payments,

including the

extensions granted through

this program. As

of October

31, 2022, the Corporation has entered into deferral or extension payment

agreements on 3,366 retail loans totaling $63.6 million.

The OREO portfolio,

which is part

of non-performing assets,

decreased by $2.1

million to $38.7

million as of

September 30, 2022,

compared

$40.8

million

December

31,

2021.

The

following

tables

show

the

composition

the

OREO

portfolio

September 30,

2022 and December

31, 2021, as

well as the

activity of

the OREO portfolio

by geographic

area during the

nine-month

period ended September 30, 2022.

132

OREO Composition by Region

(In thousands)

As of September 30, 2022

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

28,971

1,034

30,036

Commercial

3,223

2,810

6,033

Construction

2,432

181

2,613

34,626

4,025

38,682

(In thousands)

As of December 31, 2021

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

28,396

489

648

29,533

Commercial

4,521

2,810

7,331

Construction

3,833

151

3,984

36,750

3,450

648

40,848

OREO Activity by Region

(In thousands)

Nine-Month Period Ended September 30, 2022

Puerto Rico

Virgin Islands

Florida

Consolidated

Beginning Balance

36,750

3,450

648

40,848

Additions

12,842

780

13,653

Sales

(13,520)

(311)

(648)

(14,479)

Write-downs and other adjustments

(1,446)

106

(1,340)

Ending Balance

34,626

4,025

38,682

133

Net Charge-offs and Total

Credit Losses

Net charge

-offs totaled

$8.6 million

for the

third quarter

of 2022,

or 0.31%

of average

loans on

an annualized

basis, compared

$27.9 million, or

an annualized 0.99%

of average loans

for the third

quarter of 2021.

For the nine-month

period ended September

30,

2022,

net

charge-offs

totaled

$21.1

million,

0.25%

average

loans

annualized

basis,

compared

$48.0

million,

annualized 0.56%

of average

loans for

the same

period in

2021. The

bulk sale

of nonaccrual

residential mortgage

loans added

$23.1

million in

net charge-offs

in the

2021 periods.

Excluding the

effect of

net charge-offs

related to

the bulk

sale, total

net charge-offs

the third quarter

of 2021 were

$4.8 million, or

an annualized 0.17%

of average loans,

and in the first

nine months of

2021 were $25.0

million, or an annualized 0.29% of average loans.

Residential

mortgage

loans

net

charge-offs

the

third

quarter

2022

were

$0.9

million,

annualized

0.13%

average

residential

loans,

compared

to $23.5

million,

or an

annualized

2.94%

of average

residential

mortgage

loans, for

the third

quarter of

2021.

Residential

mortgage

loans

net

charge-offs

the

first

nine

months

2022

were

$2.8

million,

annualized

0.13%

average

residential

mortgage

loans,

compared

$27.5

million,

annualized

1.10%

average

loans,

for

the

first

nine

months of

2021. Excluding

the effect

of net

charge-offs

related to

the bulk

sale of

nonaccrual residential

mortgage loans,

residential

mortgage loans net

charge-offs in the

third quarter of 2021 were

$0.4 million, or an

annualized 0.05% of average

residential mortgage

loans,

and

the

first

nine

months

2021

were

$4.5

million,

annualized

0.18%

average

residential

mortgage

loans.

Approximately $0.3 million

in net charge-offs

for the third quarter

of 2022 and $1.2

million for the

first nine months

of 2022 resulted

from valuations

of collateral

dependent residential

mortgage loans

given high

delinquency levels,

compared to

$0.4 million

and $4.8

million for the comparable

periods in 2021,

respectively. Net

charge-offs on

residential mortgage loans

also included $0.6 million

and

$2.4 million related

to foreclosures recorded

in the third quarter

and first nine

months of 2022,

respectively,

compared to $1.2

million

and $2.0 million recorded for the comparable periods in 2021, respectively.

Commercial

mortgage

loans

net

recoveries

the

third

quarter

2022

were

$0.1

million,

annualized

0.01%

average

commercial

mortgage

loans,

compared

net

charge-offs

$0.4

million,

annualized

0.07%

average

loans,

for

the

third

quarter

2021.

For

the

nine-month

period

ended

September

30,

2022,

commercial

mortgage

loans

net

recoveries

were

$1.3

million, or an annualized

0.08% of average commercial

mortgage loans, compared to

net charge-offs of

$1.2 million, or an annualized

0.07% of

related average

loans, for

the same

period in

2021. Commercial

mortgage loans

net recoveries

for the

first nine

months of

2022

included recoveries totaling $1.2 million associated with two commercial

mortgage relationships.

Commercial and

industrial loans

net recoveries

in the

third quarter

of 2022

were $0.5

million, or

an annualized

0.07%

of average

commercial

and industrial

loans, compared

to $0.3

million, or

an annualized

0.04% of

related average

loans, for

the same

period in

2021.

Commercial and

industrial loans

net recoveries

in the

first nine

months of

2022 were

$1.8 million,

or an

annualized 0.08%

average commercial and

industrial loans, compared

to $5.6

million, or an

annualized 0.24% of

related average loans

for the first nine

months of 2021.

The net recoveries in

the first nine

months of 2021

included a $5.2

million recovery in

connection with the

paydown

of a nonaccrual commercial and industrial loan participation in

the Puerto Rico region.

Construction loans

net charge-offs

in the third

quarter of

2022 were $20

thousand, or an

annualized 0.07%

of average construction

loans,

compared

net

recoveries

$35

thousand,

annualized

0.08%

average

loans,

for

the

same

period

2021.

Construction loans net

recoveries in the first

nine months of 2022

were $15 thousand, or

an annualized 0.02% of

average construction

loans, compared to $64 thousand, or an annualized 0.05% of related average

loans, for the first nine months of 2021.

Net

charge-offs

consumer

loans

and

finance

leases in

the

third

quarter

of 2022

were $8.3

million,

an annualized

1.05%

average loans,

compared to

$4.4 million,

or an

annualized 0.64%

of related

average loans,

in the

third quarter

of 2021.

Net

charge-offs

consumer

loans

and

finance

leases

the

first

nine

months

2022

were

$21.4

million,

annualized

0.94%

related average

loans, compared

to $25.0

million, or

an annualized

1.24% of

related average

loans, in

the first

nine months

of 2021.

The increas

for

the third

quarter of

2022

was primarily

reflected in

the auto

loans portfolio,

when

compared to

the same

period

2021, and

the decrease

for the nine

-month period

ended September

30, 2022

was reflected in

the auto and

credit card

loan portfolios,

when compared to the same period in 2021.

134

The following table presents annualized net charge-offs

(or recoveries) to average loans held-in-portfolio for the indicated

periods:

Quarter Ended

Nine-Month Period Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Residential mortgage

(1)

0.13

2.94

(1)

0.13

1.10

(1)

Commercial mortgage

(0.01)

0.07

(0.08)

0.07

Commercial and industrial

(0.07)

(0.04)

(0.08)

(0.24)

Construction

0.07

(0.08)

(0.02)

(0.05)

Consumer and finance leases

1.05

0.64

0.94

1.24

Total loans

(1)

0.31

0.99

(1)

0.25

0.56

(1)

For the quarter and nine-month period ended

September 30, 2021, includes net charge-offs totaling

$23.1 million associated with the bulk sale

of residential mortgage

nonaccrual loans and related servicing advance

receivables. Excluding net charge-offs associated

with the bulk sale, residential mortgage and

total net charge offs to

related average loans for the third quarter

of 2021 was 0.05% and 0.17%, respectively, and for the first

nine months of 2021 was 0.18% and 0.29%,

respectively.

The following table presents the ratio of annualized net charge-offs

(or recoveries) to average loans held in various portfolios

by geographic segment for the indicated periods:

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

PUERTO RICO:

Residential mortgage

(1)

0.15

3.71

(1)

0.16

1.39

(1)

Commercial mortgage

0.10

(0.05)

0.10

Commercial and Industrial

(0.11)

(0.07)

(0.13)

(0.40)

Construction

0.53

(0.20)

0.09

(0.06)

Consumer and finance leases

1.04

0.64

0.94

1.23

Total loans

(1)

0.38

1.27

(1)

0.32

0.69

(1)

VIRGIN ISLANDS:

Residential mortgage

0.30

0.19

(0.16)

Commercial mortgage

(0.22)

(0.24)

Commercial and Industrial

Construction

Consumer and finance leases

1.67

0.70

1.35

1.38

(5)

Total loans

0.36

0.05

0.24

0.06

FLORIDA:

Residential mortgage

(0.05)

(0.08)

(0.03)

0.01

Commercial mortgage

(0.14)

(0.01)

Commercial and Industrial

0.06

Construction

(0.04)

(0.03)

(0.06)

(0.04)

Consumer and finance leases

0.47

(0.15)

(0.16)

2.76

Total loans

(0.01)

(0.02)

(0.05)

0.06

(1)

For the quarter and nine-month period ended

September 30, 2021, includes net charge-offs totaling

$23.1 million associated with the bulk sale

of residential mortgage

nonaccrual loans and related servicing advance

receivables. Excluding net charge-offs associated

with the bulk sale, residential mortgage and

total net charge offs to

related average loans for the third quarter

of 2021 was 0.08% and 0.22%, respectively, and for the first

nine months of 2021 was 0.23% and 0.35%,

respectively.

The above ratios are

based on annualized charge

-offs and are not

necessarily indicative of the

results expected for the

entire year or

in subsequent periods.

Total

net charge-offs

plus losses on OREO

operations for the

first nine months

of 2022 amounted

to $17.9 million, or

a loss rate of

0.21% on an

annualized basis to average

loans and repossessed assets,

compared to losses

of $47.5 million,

or a loss rate

of 0.55% on

an annualized basis, for the same period in 2021.

135

The following table presents information about the OREO inventory and credit

losses for the indicated periods:

Quarter Ended

Nine-Month Period Ended

September 30,

2022

2021

2022

2021

(Dollars in thousands)

OREO

OREO balances, carrying value:

Residential

30,036

29,707

30,036

29,707

Commercial

6,033

9,695

6,033

9,695

Construction

2,613

4,396

2,613

4,396

Total

38,682

43,798

38,682

43,798

OREO activity (number of properties):

Beginning property inventory

431

471

418

513

Properties acquired

139

130

Properties disposed

(49)

(80)

(145)

(196)

Ending property inventory

412

447

412

447

Average holding period (in days)

Residential

656

600

656

600

Commercial

2,420

2,035

2,420

2,035

Construction

2,192

1,874

2,192

1,874

Total average holding period (in days)

1,035

1,046

1,035

1,046

OREO operations gain (loss):

Market adjustments and gains (losses) on sales:

Residential

1,159

1,741

4,139

2,552

Commercial

408

1,078

329

(1,068)

Construction

(7)

157

107

422

Total gains on sales

1,560

2,976

4,575

1,906

Other OREO operations expenses

(496)

(688)

(1,306)

(1,377)

Net Gain on OREO operations

1,064

2,288

3,269

529

(CHARGE-OFFS) RECOVERIES

Residential charge-offs, net

(1)

(907)

(23,450)

(2,845)

(27,529)

Commercial recoveries (charge-offs), net

540

(59)

3,029

4,434

Construction (charge-offs) recoveries, net

(20)

Consumer and finance leases charge-offs, net

(8,258)

(4,390)

(21,398)

(25,017)

Total charge-offs,

net

(8,645)

(27,864)

(21,199)

(48,048)

TOTAL CREDIT LOSSES

(2)

(7,581)

(25,576)

(17,930)

(47,519)

LOSS RATIO PER CATEGORY

(3)

Residential

(0.03)

2.69

(0.06)

0.99

Commercial

(0.07)

(0.08)

(0.09)

(0.08)

Construction

0.09

(0.43)

(0.13)

(0.34)

Consumer

1.04

0.64

0.94

1.24

TOTAL CREDIT LOSS RATIO

(4)

0.27

0.91

0.21

0.55

(1)

For the quarter and nine-month period ended September 30,

2021, includes net charge-offs totaling $23.1 million associated with the bulk sale

of residential

nonaccrual loans and related servicing advance receivables.

(2)

Equal to net gain on OREO operations plus charge-offs, net.

(3)

Calculated as net charge-offs plus market adjustments, and gains (losses) on sales

of OREO divided by average loans and repossessed assets.

(4)

Calculated as net charge-offs plus net gain on OREO operations divided by

average loans and repossessed assets.

136

Operational Risk

The

Corporation

faces

ongoing

and

emerging

risk

and

regulatory

pressure

the

activities

that

surround

the

delivery

banking

and

financial

products.

Coupled

with

external

influences,

such

market

conditions,

security

risks,

and

legal

risks,

the

potential for

operational and

reputational loss

has increased.

mitigate and

control operational

risk, the

Corporation has

developed,

and continues

to enhance, specific

internal controls,

policies and procedures

that are designed

to identify and

manage operational

risk

appropriate

levels

throughout

the

organization.

The

purpose

these

mechanisms

provide

reasonable

assurance

that

the

Corporation’s business operations

are functioning within the policies and limits established by management.

The

Corporation

classifies operational

risk

into

two

major

categories:

business-specific

and

corporate-wide

affecting

all business

lines.

For

business

specific

risks,

risk

assessment

group

works

with

the

various

business

units

ensure

consistency

policies,

processes

and

assessments.

With

respect

corporate-wide

risks,

such

information

security,

business

recovery,

and

legal

and

compliance, the

Corporation has specialized

groups, such

as the Legal

Department, Information

Security,

Corporate Compliance,

and

Operations. These groups

assist the lines of

business in the

development and implementation

of risk management

practices specific to

the needs of the business groups.

Legal and Compliance Risk

Legal and compliance risk includes

the risk of noncompliance with applicable

legal and regulatory requirements, the

risk of adverse

legal

judgments

against

the

Corporation,

and

the

risk

that

counterparty’s

performance

obligations

will

unenforceable.

The

Corporation

subject

extensive

regulation

the

different

jurisdictions

which

conducts

its

business,

and

this

regulatory

scrutiny has

been significantly

increasing over

the years.

The Corporation

has established,

and continues

to enhance,

procedures that

are designed

to ensure

compliance with

all applicable

statutory,

regulatory

and any

other legal

requirements.

The Corporation

has a

Compliance

Director

who

reports

the

Chief

Risk

Officer

and

responsible

for

the

oversight

regulatory

compliance

and

implementation

of an

enterprise-wide compliance

risk assessment

process.

The Compliance

division

has officer

roles in

each major

business area with direct reporting responsibilities to the Corporate Compliance

Group.

Concentration Risk

The Corporation conducts

its operations in

a geographically concentrated

area, as its main

market is Puerto

Rico. Of the total

gross

loan portfolio held

for investment of

$11.3 billion

as of September

30, 2022, the

Corporation had credit

risk of approximately

79% in

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

Islands region.

137

Update on the Puerto Rico Fiscal Situation

A significant

portion of

the Corporation’s

business activities

and credit

exposure is

concentrated in

the Commonwealth

of Puerto

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

Economic Indicators

During September

2022, the

Puerto Rico

Planning Board

(“PRPB”) published

the tables

for the

2021 Statistical

Appendix

of the

Economic Report

to the

Governor,

which include

a preliminary

estimate of

Puerto Rico’s

Gross National

Product (“GNP”)

for fiscal

year 2021,

as well

as revised

estimates for

prior fiscal

years. According

to the

PRPB, Puerto

Rico’s

real GNP

expanded by

1.0% in

fiscal year

2021, significantly

above the

PRPB’s

original baseline

projection of

a 2.0%

contraction. According

to the

data, real

GNP

growth

was

primarily

driven

sharp

increase

personal

consumption

expenditures

reflecting

the

relaxation

COVID-related

restrictions, as well as

the impact of

the substantial relief funding

deployed over the

period. To

a lesser extent, growth

in FY2021 was

also

driven

higher

level

investments

machinery,

equipment,

and

construction.

These

favorable

variances

were

partially

offset

by an

increase in

imports, a

reduction in

exports, and

a negative

change in

the level

of inventories.

For prior

fiscal years,

the

PRPB revised

its previously

published

estimates as

follows: from

-4.4% to

-4.2% for

FY2018, from

1.8% to

2.1% for

FY2019,

and

essentially unchanged for FY2020.

There

are

other

indicators

that

gauge

economic

activity

and

are

published

with

greater

frequency,

for

example,

the

Economic

Development

Bank

for

Puerto

Rico’s

Economic

Activity

Index

(“EDB-EAI”).

Although

not

direct

measure

Puerto

Rico’s

real

GNP,

the EDB-EAI

is a coincident

index for economic

activity that is

highly correlated

to Puerto Rico’s

real GNP.

For August 2022,

the

EDB-EAI

registered

1.5%

improvement

when

compared

August

2021,

marking

the

eighteenth

consecutive

month

year-

over-year

increases.

Similarly,

over

the

twelve-month

period

ended

August

31,

2022,

the

average

reading

for

the

index

was

3.7%

higher than the comparable figure a year earlier.

Fiscal Plan

January

27,

2022,

the

PROMESA

oversight

board

certified

the

2022

Fiscal

Plan

for

Puerto

Rico.

Similar

fiscal

plans,

the

2022

Fiscal

Plan

incorporates

updated

information

the

macroeconomic

environment,

well

government

revenues,

expenditures,

structural

reform

efforts,

and

recent

increases

federal

funding.

importantly,

the

2022

Fiscal

Plan

reflects the Commonwealth

Plan of Adjustment

recently confirmed by

the U.S. District Court

for the District

of Puerto Rico.

Relative

to the

fiscal plan,

the 2022

Fiscal Plan

incorporates a

new set

of expenditure

projections that

factor in

the now-established

debt

service

requirements

pursuant

the

Plan of

Adjustment,

as well

as additional

investments

enabled

by the

increased resources

available

to the

government.

Accordingly,

the 2022

Fiscal Plan

projects

unrestricted

surplus

after debt

service to

average $1

billion

annually

between

fiscal

years

2022

and

2031.

The

2022

Fiscal

Plan

prioritizes

resource

allocations

across

three

major

themes:

(i)

investing in

the operational

capacity of

the government

to deliver

services with

Civil Service

Reform, (ii)

prioritizing obligations

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

government.

The

2022

Fiscal

Plan

contains

updated

macroeconomic

forecast

that

reflects

the

adverse

impact

the

pandemic-induced

recession at

the end of

fiscal year

2020, followed

by a

forecasted rebound

and recovery

in fiscal years

2021 through

2023. Similar

the

fiscal

plan,

the

2022

Fiscal

Plan

incorporates

real

growth

series

that

was

adjusted

for

the

short-term

income

effects

resulting

from

the

extraordinary

unemployment

insurance

and

other

pandemic-related

direct

transfer

programs.

Specifically,

the

revised fiscal plan

estimates that Puerto

Rico’s GNP

will grow by

5.2% in fiscal

year 2022, followed

by a 0.6%

growth in fiscal

year

2023.

Excluding

the

effect

household

income

from

the

unprecedented

pandemic-related

federal

government

stimulus,

the

2022

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

2022 and 2023, respectively.

Over the past

few years, Puerto

Rico has received

an infusion

of historical

levels of federal

support, creating

new opportunities

address

high-priority

needs.

The

2022

Fiscal

Plan

projects

that

approximately

$84

billion

disaster

relief

funding

total,

from

federal and private

sources, will be

disbursed in

the reconstruction

process over a

period of 18

years (2018 to

2035). Moreover,

since

the previous

fiscal plan

was certified

in 2021,

the Commonwealth’s

available resources

have significantly

increased principally

as a

result

two

major

developments:

(i)

incremental

federal

funding

for

health

care

result

the

recent

guidance

issued

the

Centers for

Medicare and

Medicaid Services

(“CMS”), which

increases the

federal funding

cap by

over $2

billion per

year,

and (ii)

improved local

revenue collections

as a

result of

a better-than-expected

recovery,

increased local

consumption and

economic activity

enabled by

enhanced income

support programs

(e.g., incremental

funding of

approximately $460

million for

the Nutrition

Assistance

Program). The 2022

Fiscal Plan provides a

roadmap to take maximum

advantage of this unique

opportunity,

create an environment

fiscal stability,

and develop the

conditions

for long-term growth

and economic development.

Nonetheless, the fiscal

plan continues to

underline the need to implement structural reforms to maximize the positive

impact of federal recovery funds.

138

Debt Restructuring

After more than

four years since

the Commonwealth

entered Title

III, on January

18, 2022, the

U.S. District Court

for the District

of Puerto

Rico (the

“Court”) issued

an order

to confirm

the Plan

of Adjustment

to restructure

approximately $35

billion of

debt and

other claims

against the

Commonwealth of

Puerto Rico,

the PBA,

and the

ERS; and

more than

$50 billion

of pension

liabilities. The

Plan of Adjustment became effective

on March 15, 2022, as the Government

of Puerto Rico completed the exchange

of more than $33

billion

existing

bonds

and

other

claims

into

approximately

billion

new

bonds.

result,

annual

debt

service

for

the

Commonwealth

anticipated

decrease

from

maximum

$3.9

billion

prior

the

restructuring

$1.15

billion

each

year.

addition,

the

Commonwealth

made

than

$10

billion

cash

payments

various

creditor

groups,

well

implemented

the

Pension Reserve

Trust

provisions created

in the

Plan of

Adjustment. The

Pension Reserve

Trust

is projected

to be

funded with

than $10 billion in contributions

over the next 10 years, and up

to $1.4 billion this year alone.

Confirmation and implementation of the

Plan

Adjustment

marks

major

milestone

the

overall

debt

restructuring

process

and

creates

foundation

for

Puerto

Rico’s

recovery and economic growth.

On October 12, 2022,

the Court issued an order

to confirm the Puerto Rico

Highway and Transportation

Authority’s (“HTA”)

plan

adjustment

restructure

approximately

$6.4

billion

claims.

According

the

PROMESA

oversight

board,

the

plan

reduces

HTA’s

$6.4 billion in claims by

more than 80% and saves Puerto

Rico more than $3 billion in debt

service payments. Confirmation of

the

HTA’s

plan

adjustment marks

another

significant

milestone

for

Puerto

Rico

to end

its bankruptcy

process under

PROMESA

and

enables

HTA

make

the

necessary

investments

improve

and

maintain

Puerto

Rico’s

roads

and

other

transportation

infrastructure.

On September 29, 2022, Judge Laura Taylor

Swain issued an order establishing the schedule to

continue negotiations and litigation

related to PREPA’s

Title III

case. Pursuant to

such order,

Judge Taylor

Swain directed

the PROMESA oversight

board to designate

lead

negotiator

facilitate

the

mediation

team

and

other

parties’

interaction

with

the

PROMESA

oversight

board.

Also,

the

order

directed

the

PROMESA

oversight

board

file,

December

2022,

proposed

plan

adjustment

that

believes

could

confirmable,

considering

the

litigation

risk

and

economic

issues

that

are

dispute.

The

plan

may,

but

not

required

to,

include

alternative provisions addressing proposed

resolutions contingent on different outcomes

of the disputed issues. According to

the order,

the plan must be

accompanied by a disclosure

statement and proposed

confirmation schedule contemplating

a June 2023 confirmation

hearing.

Other Developments

On September

17, 2022,

Hurricane Fiona

made landfall

on the

southwestern part

of Puerto

Rico with

winds exceeding

100 miles

per

hour in

some

areas and

leaving historic

amounts

of rain,

causing

a complete

power outage

in Puerto

Rico,

which in

turn led

water service

interruptions for

over 778,000

residents in

the Island.

Following the

passage of

the hurricane,

President Biden

granted

the Governor’s

request for

a declaration of

a major disaster

for all 78

municipalities in

Puerto Rico, and

as a result,

all municipalities

have

access

FEMA’s

Public

Assistance

Programs

for

response

and

reconstruction

projects.

addition,

the

local government,

collaboration

with

the

PROMESA

oversight

board,

has

enacted

numerous

emergency

response

measures

provide

immediate

funding

and assistance

to municipalities

and

governmental

agencies.

As of

October

14, 2022,

99% of

both

Puerto Rico’s

water and

electric services had been restored.

Notable

progress

continues

made

part

the

ongoing

efforts

prioritizing

the

restoration,

improvement,

and

modernization

Puerto

Rico’s

infrastructure.

According

the

Central

Office

for

Recovery,

Reconstruction,

and

Resiliency

(“COR3”),

progress

evidenced

the

significant

increase

permanent

work

projects

that

have

already

started

executing

the

reconstruction

efforts

with

FEMA

obligated

funding.

June

30,

2022,

there

were

total

5,613

permanent

work

projects

reported,

more than

twice the

comparable

amount reported

as of

December 31,

2021, of

2,650 projects.

Furthermore, on

October 5,

2022, COR3

announced that

during the

first nine

months of

2022, the

Government had

already reached

its goal

for the entire

year of

disbursing approximately $1

billion in advances and

reimbursements for projects

led by municipalities,

government dependencies

and

non-profit organizations,

through FEMA’s

Public Assistance

program. Such

progress has

been mainly

driven by

the implementation

of the

Working

Capital Advance

(“WCA”) program

during June

2022.

The WCA

program,

which

was originally

made available

municipalities

and

recently

extended

PREPA,

PRASA

and

other

government

agencies,

advances

25%

the

total

cost

obligated projects

that have

not commenced

due to lack

of funding. According

to COR3, the

extension of

the WCA program

to these

additional entities is expected to accelerate the pace of disbursements going

forward.

139

Exposure to Puerto Rico Government

As of September

30, 2022, the Corporation

had $327.2 million

of direct exposure

to the Puerto Rico

government, its municipalities

and

public

corporations,

compared

$360.1

million

December

31,

2021.

September

30,

2022,

approximately

$170.4

million of the

exposure consisted of loans

and obligations of municipalities

in Puerto Rico that

are supported by assigned

property tax

revenues

and

for

which,

most

cases,

the

good

faith,

credit

and

unlimited

taxing

power

the

applicable

municipality

have

been

pledged

their

repayment,

and

$113.9

million

loans

and

obligations

which

are

supported

one

specific

sources

municipal

revenues.

Approximately

71%

the

Corporation’s

exposure

Puerto

Rico

municipalities

consisted

primarily

senior

priority

obligations

concentrated

in four

of the

largest

municipalities in

Puerto

Rico. The

municipalities

are required

by law

to levy

special property

taxes in

such amounts

as are

required for

the payment

of all

of their

respective general

obligation bonds

and notes.

Furthermore,

municipalities

are

also

likely

to be

affected

by the

negative

economic

and other

effects

resulting

from

the COVID-19

pandemic, as well

as expense, revenue,

or cash management

measures taken to

address the Puerto

Rico government’s

fiscal problems

and measures included in fiscal plans of other government

entities. In addition to municipalities, the total direct exposure also included

$11.5

million

loans

affiliate

PREPA,

$28.0

million

loans

agency

the

Puerto

Rico

central

government,

and

obligations of the

Puerto Rico government, specifically

a residential pass-through

MBS issued by

the PRHFA,

at an amortized

cost of

$3.4 million as part of its available-for-sale debt securities portfolio (fair value of

$2.2 million as of September 30, 2022).

The

following

table

details

the

Corporation’s

total

direct

exposure

Puerto

Rico

government

obligations

according

their

maturities:

As of September 30, 2022

Investment

Portfolio

Total

(Amortized cost)

Loans

Exposure

(In thousands)

Puerto Rico Housing Finance Authority:

After 10 years

3,365

Total

Puerto Rico Housing Finance Authority

3,365

Puerto Rico public corporation:

After 5 to 10 years

28,027

Total Puerto Rico public

corporation

28,027

Affiliate of the Puerto Rico Electric Power Authority:

Due within one year

11,516

Total Puerto Rico government

affiliate

11,516

Total

Puerto Rico public corporations and government affiliate

39,543

Municipalities:

Due within one year

1,200

19,151

20,351

After 1 to 5 years

42,426

55,897

98,323

After 5 to 10 years

55,737

43,810

99,547

After 10 years

66,023

Total

Municipalities

165,386

118,858

284,244

Total

Direct Government Exposure

168,751

158,401

327,152

140

addition,

September

30,

2022,

the

Corporation

had

$86.7

million

exposure

residential

mortgage

loans

that

are

guaranteed by

the PRHFA,

a governmental instrumentality

that has been

designated as a

covered entity under

PROMESA (December

31,

2021

–

$92.8

million).

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties

and

the

guarantees serve

to cover shortfalls

in collateral in

the event of

a borrower default.

The Puerto Rico

government guarantees up

to $75

million

the

principal

for

all

loans

under

the

mortgage

loan

insurance

program.

According

the

most

recently

released

audited

financial

statements

the

PRHFA,

June

30,

2020,

the

PRHFA’s

mortgage

loans

insurance

program

covered

loans

aggregate

amount

approximately

$553

million.

The

regulations

adopted

the

PRHFA,

requires

the

establishment

adequate

reserves to

guarantee

the solvency

of the

mortgage loans

insurance program.

As of

June 30,

2020, the

most recent

date as

of which

information is available, the PRHFA

had a liability of approximately $6.1 million as an estimate of the

losses inherent in the portfolio.

As of September

30, 2022, the Corporation

had $2.5 billion

of public sector

deposits in Puerto

Rico, compared to

$2.7 billion as

December

31,

2021.

Approximately

25%

the

public

sector

deposits

September

30,

2022

was

from

municipalities

and

municipal agencies

in Puerto

Rico and

75% was

from the

public corporation,

the Puerto

Rico central

government

and agencies,

and

U.S. federal government agencies in Puerto Rico.

Exposure to USVI Government

The Corporation has operations in the USVI and has credit exposure

to USVI government entities.

For

many

years,

the

USVI

has

been

experiencing

number

fiscal

and

economic

challenges

that

have

deteriorated

the

overall

financial and economic

conditions in the area.

Between 2008 and

2017, the USVI real

GDP contracted at a

compound annual rate

of -

4.2%.

March

2022,

the

United

States

Bureau

Economic

Analysis

(the

“BEA”)

released

its

estimates

GDP

for

2020.

According

the

BEA,

the

USVI’s

real

GDP

decreased

2.2%.

Also,

the

BEA

revised

its

previously

published

real

GDP

growth

estimate

for

2019

from

2.2%

2.8%.

According

the

BEA,

the

decline

real

GDP

for

2020

reflected

decreases

exports

services, private fixed investment,

personal consumption expenditures,

and government spending

primarily as a result of

the effects of

the COVID-19

pandemic. Exports

of services, which

consists primarily

of spending

by visitors, decreased

43.5%, while

private fixed

investment decreased

27.7%. These decreases

were partly offset

by an increase

in private inventory

investment, reflecting

an increase

crude

oil

and

other

petroleum

products

imported

and

store

the

islands.

addition,

imports

declined

10.6%

result

reductions

imports

goods

including

consumer

goods

and

equipment,

and

import

services.

According

the

BEA,

expenditures funded

by the

various federal

grants and

transfer payments

are reflected

in the

GDP estimates;

however,

the full

effects

of the

pandemic cannot

be quantified

in the

GDP statistics

for the

USVI because

the impacts

are generally

embedded in

source data

and cannot be separately identified.

PROMESA

does

not

apply

to the

USVI

and,

as such,

there

is currently

no federal

legislation

permitting

the restructuring

the

debts of

the USVI

and

its public

corporations

and instrumentalities.

the extent

that the

fiscal condition

of the

USVI government

continues to

deteriorate, the

U.S. Congress

or the government

of the

USVI may enact

legislation allowing

for the restructuring

of the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of September 30, 2022, the Corporation had $37.6

million in loans to USVI public corporations, compared to $39.2 million

as of

December 31, 2021. As of September 30, 2022, all loans were currently performing

and up to date on principal and interest payments.

Impact of Inflation and Changing Prices

The

financial

statements

and

data

presented

herein

have

been

prepared

conformity

with

GAAP,

which

requires

the

measurement

of the

financial position

and operating

results in

terms of

historical dollars

without considering

changes in

the relative

purchasing power of money over time due to inflation.

Regulatory Developments in Response to Climate Change

Federal

and

state governments

and

government

agencies have

demonstrated

increased attention

to the

impacts and

potential risks

associated

with

climate

change.

For

example,

federal

banking

regulators

are

reviewing

the

implications

climate

change

the

financial

stability

the

United

States

and

the

identification

and

management

large

banks

climate-related

financial

risks.

addition,

the SEC

has proposed

rules that

would

require public

companies

to disclose

certain

climate-related

information,

including

greenhouse

gas

emissions,

climate-related

targets

and

goals,

and

governance

climate-related

risks

and

relevant

risk

management

processes.

The

approaches

taken

various

governments

and

government

agencies

can

vary

significantly,

evolve

over

time,

and

sometimes conflict. Any current

or future rules, regulations, and

guidance related to climate change

and its impacts could require

us to

change certain of our business

practices, reduce our revenue and

earnings, impose additional costs on

us, or otherwise adversely

affect

our business operations and/or competitive position.

141

BASIS OF

PRESENTATION

The Corporation

has included in

this Form 10-Q the

following

financial

measures that

are not recognized

under GAAP, which are referred

to as non-GAAP

financial

measures:

Net

interest

income,

interest

rate

spread,

and

net

interest

margin

excluding

the

changes

the

fair

value

derivative

instruments

and

tax-equivalent

basis

are

reported

order

provide

investors

additional

information

about

the

Corporation’s

net

interest

income

that

management

uses

and

believes

should

facilitate

comparability and

analysis

the

periods presented.

The changes in the

fair value of

derivative instruments have

no effect on

interest due or

interest earned on

interest-bearing

liabilities

interest-earning

assets,

respectively.

The

tax-equivalent

adjustment

net

interest

income

recognizes

the income

tax savings

when comparing

taxable and

tax-exempt

assets and

assumes a

marginal

income tax

rate.

Income

from tax-exempt

earning assets

is increased

by an

amount equivalent

to the

taxes that

would have

been paid

if this

income

had

been

taxable

statutory

rates.

Management

believes

that

standard

practice

the

banking

industry

present net

interest income,

interest rate spread,

and net interest

margin on

a fully tax-equivalent

basis. This

adjustment puts

all earning assets, most notably

tax-exempt securities and tax-exempt

loans, on a common basis that

facilitates comparison of

results to

the results

of peers.

See “Results

of Operations

- Net

Interest

Income”

above for

the table

that reconciles

the net

interest

income

calculated

and

presented

accordance

with

GAAP

with

the

non-GAAP

financial

measure

“net

interest

income

tax-equivalent

basis

and

excluding

valuations.”

The

table

also

reconciles

net

interest

spread

and

margin

calculated and

presented in

accordance with

GAAP with

the non-GAAP

financial measures

“net interest

spread and

margin

on a tax-equivalent basis and excluding valuations.”

The

tangible

common

equity

ratio

and

tangible

book

value

per

common

are

non-GAAP

financial

measures

that

management believes

are generally

used by

the financial

community to

evaluate capital

adequacy.

Tangible

common equity

is total

equity

less preferred

equity,

goodwill,

and other

intangibles.

Similarly,

tangible

assets are

total assets

less goodwill

and other

intangibles. Management

and many

stock analysts

use the

tangible common

equity ratio

and tangible

book value

per

common

conjunction

with

traditional

bank

capital

ratios

compare

the

capital

adequacy

banking

organizations

with

significant

amounts

goodwill

other

intangible

assets,

typically

stemming

from

the

use

the

purchase method

of accounting for

mergers and

acquisitions. Accordingly,

the Corporation

believes that disclosures

of these

financial measures

may be

useful to

investors. Neither

tangible common

equity nor

tangible assets,

or the

related measures,

should be

considered in

isolation or

as a

substitute for

stockholders’

equity,

total assets,

or any

other measure

calculated in

accordance

with

GAAP.

Moreover,

the

manner

which

the

Corporation

calculates

its

tangible

common

equity,

tangible

assets, and

any other

related measures

may differ

from that

of other

companies reporting

measures with

similar names.

See

“Risk Management – Capital” above for a reconciliation of the Corporation’s

tangible common equity and tangible assets.

supplement

the

Corporation’s

financial

statements

presented

accordance

with

GAAP,

the

Corporation

uses,

and

believes that investors would benefit

from disclosure of, non-GAAP financial measures

that reflect adjustments to net income

and non

-interest expenses

to exclude

items that

management

identifies as

Special Items

because management

believes they

are not

reflective of

core operating

performance, are

not expected

to reoccur with

any regularity or

may reoccur

at uncertain

times and in uncertain

amounts.

See “Special Items” above

for non-GAAP financial measures

for the quarter and

nine-month

period ended September 30, 2021 that reflect the described items that were excluded

for one of those reasons.

142

ITEM 3. QUANTITATIVE

AND QUALITATIVE DISCLOSURES

ABOUT MARKET

RISK

For

information

regarding

market

risk

which

the

Corporation

exposed,

see

the

information

contained

Part

Item

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results of

Operations

— Risk

Management”

this Quarterly

Report on Form 10-Q.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

First

BanCorp.’s

management,

including

its

Chief

Executive

Officer

and

Chief

Financial

Officer,

evaluated

the

effectiveness

First

BanCorp.’s

disclosure

controls

and

procedures

(as

defined

Rules

13a-15(e)

and

15d-15(e)

under

the

Exchange

Act)

September 30, 2022.

Based on this evaluation

as of the end

of the period

covered by this Form

10-Q, the Chief

Executive Officer

and

Chief

Financial

Officer

concluded

that

the

Corporation’s

disclosure

controls

and

procedures

were

effective

and

provide

reasonable

assurance

that the

information

required to

be disclosed

by the

Corporation in

reports that

the Corporation

files or

submits under

the

Exchange

Act

recorded,

processed,

summarized

and

reported

within

the

time

periods

specified

SEC

rules

and

forms

and

accumulated

and

reported

the

Corporation’s

management,

including

the

Chief

Executive

Office

and

Chief

Financial

Officer,

appropriate, to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting

There have

been no

changes to

the Corporation’s

internal control

over financial

reporting (as

defined in

Rules 13a-15(f)

and 15d-

15(f)

under

the

Exchange

Act)

during

our

most

recent

quarter

ended

September

30,

2022

that

have

materially

affected,

are

reasonably likely to materially affect, the Corporation’s

internal control over financial reporting.

143

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

For a discussion of legal proceedings,

see Note 22 – Regulatory Matters,

Commitments

and Contingencies,

to the Corporation’s unaudited

consolidated

financial

statements

for the

quarter

ended September 30, 2022, which is incorporated by reference in this Item 1.

ITEM 1A.

RISK FACTORS

The Corporation’s

business,

operating

results

and/or the

market price

of our common

stock may

be significantly

affected by

a number of

factors. For a detailed discussion

of certain risk factors that could affect the Corporation’s

future operations,

financial condition

or results

for future

periods are

set forth in

Part I, Item

1A., “Risk

Factors,”

in the 2021

Annual Report

on Form 10-K.

These risk

factors,

and others,

could

cause

actual

results

differ

materially from

historical results

the

results

contemplated by

the

forward-looking statements

contained in

this report.

Also, refer

to the discussion

in “Forward

Looking Statements”

and Part I, Item

2., “Management’s

Discussion and

Analysis of Financial Condition and Results of Operations,” in this Quarterly Report on Form 10-Q

for additional information that may

supplement

or update

the discussion

of risk

factors in

the 2021

Annual Report

on Form

10-K.

There have

been no

material changes

from those

risk factors

previously disclosed

in Part

I, Item

1A., “Risk

Factors,” in

the 2021

Annual

Report

Form

10-K.

Additional

risks

and

uncertainties

that

are

not

currently

known

the

Corporation

are

currently

deemed

by the

Corporation

to be

immaterial

also may

materially

adversely

affect

the Corporation’s

business, financial

condition

results of operations.

144

ITEM 2.

UNREGISTERED

SALES OF

EQUITY SECURITIES

AND USE OF

PROCEEDS

The Corporation

did not

have any

unregistered

sales of

equity

securities

during the

quarter

ended September

30, 2022.

Issuer Purchases

of Equity

Securities

The following table provides information in relation to

the Corporation’s purchases of shares of

its common stock during the

quarter

ended September 30, 2022:

Period

Total Number of Shares

Purchased

Average Price

Paid per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

Approximate Dollar Value

of Shares That May Yet

Purchased Under These

Plans or Programs (In

thousands)

(1)

July 1, 2022 - July 31, 2022

3,636,269

13.75

3,636,269

200,000

August 1, 2022 - August 31, 2022

290,000

14.68

290,000

195,743

September 1, 2022 - September 30, 2022

1,459,588

14.22

1,458,869

175,000

Total

5,385,857

(2)(3)

5,385,138

(1)

As of

September 30,

2022, the

Corporation was

authorized to

purchase up

to $350

million of

the Corporation’s

common stock

under the

stock repurchase

program, that

was publicly

announced

April

27,

2022,

which

$175.0

million

had

been

utilized.

The

remaining

$175.0

million

the

table

represents

the

remaining

amount

authorized

under

the

stock

repurchase program as of September 30, 2022.

The stock repurchase program does not obligate the

Corporation to acquire any specific number of

shares and may be modified, suspended,

or terminated at

any time at

the Corporation's

discretion. Under

the stock repurchase

program, shares

may be repurchased

through open

market purchases,

accelerated share

repurchases

and/or privately negotiated transactions, including under plans

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

(2)

Includes 5,385,138

shares of common stock repurchased in the open market at an

average price of $13.93 for a total purchase price of approximately

$75.0 million.

(3)

Includes 719 shares of common

stock withheld by the Corporation to

cover minimum tax withholding obligations

upon the vesting of restricted stock.

The Corporation intends to continue

to satisfy statutory tax withholding obligations in connection with the

vesting of outstanding restricted stock and performance units

through the withholding of shares.

145

ITEM 6.

EXHIBITS

See the

Exhibit Index

below, which

is incorporated

by reference

herein:

Exhibit Index

10.1

Revised Non-Management and Non-Employee Directors of the Board of Directors Compensation Structure

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

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

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

XBRL Taxonomy Extension Schema Document,

filed herewith

101.CAL

XBRL Taxonomy Extension Calculation

Linkbase Document, filed herewith

101.DEF

XBRL Taxonomy Extension Definitions

Linkbase Document, filed herewith

101.LAB

XBRL Taxonomy Extension Label Linkbase

Document, filed herewith

101.PRE

XBRL Taxonomy Extension Presentation

Linkbase Document, filed herewith

104

The cover

page of

First BanCorp.

Quarterly Report

on Form 10-Q

for the

quarter ended

September 30,

2022, formatted

in Inline

XBRL (included within the Exhibit 101 attachments)

146

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.

Registrant

Date:

November

8, 2022

By:

/s/ Aurelio

Alemán

Aurelio Alemán

President

and Chief

Executive

Officer

Date: November

8, 2022

By:

/s/ Orlando

Berges

Orlando

Berges

Executive

Vice President

and Chief

Financial

Officer