First BanCorp. 10Q 2023 Q2 Quarterly report

0001057706 us-gaap:ConsumerPortfolioSegmentMember us-gaap:AutomobileLoanMember us-gaap:PerformingFinancingReceivableMember fbp:PRAndVIMember 2022-12-31

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

June 30, 2023

[ ]

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:

178,298,443

shares outstanding as of August 1, 2023.

FIRST BANCORP.

INDEX PAGE

PART

I. FINANCIAL INFORMATION

PAGE

Item 1. Financial Statements:

Consolidated Statements of Financial Condition (Unaudited) as of June

30, 2023 and December 31, 2022

Consolidated Statements

of Income

(Unaudited) –

Quarters and

Six-Month Periods

ended June

30, 2023

and 2022

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited) – Quarters and Six-Month Periods

ended June 30, 2023 and 2022

Consolidated Statements of Cash Flows (Unaudited) – Six-Month Periods

ended June 30, 2023 and 2022

Consolidated

Statements

Changes

Stockholders’

Equity

(Unaudited)

–

Quarters

and

Six-Month

Periods ended June 30, 2023 and 2022

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

135

Item 4. Controls and Procedures

Item 5. Other Information

135

PART

II. OTHER INFORMATION

Item 1.

Legal Proceedings

136

Item 1A. Risk Factors

136

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

138

Item 6.

Exhibits

139

SIGNATURES

Forward-Looking Statements

This Quarterly Report on Form 10-Q

(“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,”

“our”)

with

the

U.S.

Securities

and

Exchange

Commission

(the

“SEC”),

the

Corporation’s press

releases or in other public or

stockholder communications made by

the Corporation, or in oral statements

made on

behalf of the Corporation by,

or 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,

in connection

with any

discussion of

future operating,

financial or

other performance

are meant to 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

hereof,

and

advises

readers

that

any

such

forward-looking

statements

are

not

guarantees

future

performance

and

involve

certain risks,

uncertainties,

estimates, and

assumptions by

us that

are difficult

to predict.

Various

factors, some

of 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,

2022

(the

“2022

Annual

Report

Form

10-K”),

Part

II,

Item

1A,

“Risk

Factors”

the

Corporation’s

Quarterly Report on Form 10-Q for the quarterly period ended March

31, 2023, and the following:

●

the impacts of rising interest

rates and inflation on

the Corporation, including a

decrease in demand for new

loan originations

and refinancings,

increased competition

for borrowers,

attrition in deposits,

a reduction

in the fair

value of the

Corporation’s

debt securities portfolio, and adverse effects on the Corporation’s

results of operations and its liquidity position;

●

volatility in the

financial services industry,

including failures or

rumored failures of

other depository institutions,

and actions

taken by governmental

agencies to stabilize

the financial

system, including

Federal Deposit Insurance

Corporation (“FDIC”)

special assessments, which could result in, among other things, bank deposit

runoffs and liquidity constraints;

●

the

effect

continued

changes

the

fiscal

and

monetary

policies

and

regulations

the

United

States

(“U.S.”)

federal

government,

the Puerto

Rico government

and other governments,

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”

the

“FED”),

the

FDIC,

government-sponsored

housing

agencies

and

regulators

Puerto

Rico,

the

U.S.,

and

the

U.S.

Virgin Islands

(the “USVI) and British Virgin

Islands (the “BVI”);

●

uncertainty as

to the

ability of

the Corporation’s

banking subsidiary,

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), to

retain its core

deposits and

generate sufficient

cash flow through

its wholesale funding

sources, such as

securities sold under

agreements

repurchase,

Federal

Home

Loan

Bank

(“FHLB”)

advances,

and

brokered

certificates

deposit

(“brokered

CDs”), which may require us to sell investment securities at a loss;

●

adverse

changes

in general

economic

conditions

in Puerto

Rico, the

U.S., and

the USVI

and

BVI, including

in the

interest

rate

environment,

unemployment

rates,

market

liquidity,

housing

absorption

rates,

real

estate

markets,

and

U.S.

capital

markets,

which

may

affect

funding

sources,

loan

portfolio

performance

and

credit

quality,

market

prices

investment

securities,

and

demand

for

the Corporation’s

products

and services,

and which

may

reduce

the

Corporation’s

revenues and

earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

in Puerto

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

relief;

●

the ability

of the

Corporation,

FirstBank,

and

third-party

service providers

to identify

and prevent

cyber-security

incidents,

such

data

security

breaches,

ransomware,

malware,

“denial

service”

attacks,

“hacking,”

identity

theft,

and

state-

sponsored

cyberthreats,

and

the

occurrence

and

response

any

incidents

that

occur,

such

April

2023

security

incident

one

our

third-party

vendors,

which

may

result

misuse

misappropriation

confidential

proprietary

information, disruption,

or damage

to our

systems or

those of

third-party service

providers, increased

costs and

losses or

adverse effect to our reputation;

●

general competitive

factors and other

market risks as

well as the

implementation of

strategic growth opportunities,

including

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

or dispositions;

●

uncertainty as

to the

implementation of

the debt

restructuring plan

of Puerto

Rico (“Plan

of Adjustment”

or “PoA”)

and the

fiscal plan

for Puerto

Rico as

certified

on April

3, 2023

(the “2023

Fiscal Plan”)

by the

oversight

board

established

by the

Puerto Rico

Oversight, Management,

and Economic

Stability Act

(“PROMESA”),

or any

revisions to

it, on

our clients

and

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

developments and tax regulations in Puerto Rico;

●

the

impact

changes

accounting

standards,

assumptions

applying

those

standards,

forecasts

economic

variables considered for the determination of the allowance for credit

losses (“ACL”);

●

the ability of FirstBank to realize the benefits of its net deferred tax assets;

●

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

initiatives and commitments;

●

the impacts

of natural

or man-made

disasters, widespread

health emergencies,

geopolitical conflicts

(including

the ongoing

conflict

Ukraine),

terrorist

attacks,

other

catastrophic

external

events,

including

impacts

such

events

general

economic conditions and on the Corporation’s

assumptions regarding forecasts of economic variables;

●

the effect of

changes in the interest

rate environment, including

any adverse change

in the Corporation’s

ability to attract and

retain

clients

and

gain

acceptance

from

current

and

prospective

customers

for

new

products

and

services,

including

those

related to the offering of digital banking and financial services;

●

the

risk

that

additional

portions

the

unrealized

losses in

the

Corporation’s

debt

securities portfolio

are

determined

credit-related,

the

need

of additional

credit

losses that

could

emerge

from

the

recent

downgrade

the

United

States of

America’s

Long-Term

Foreign-Currency

Issuer

Default

Rating

(“IDR”)

‘AA+’

from

‘AAA’,

resulting

additional

charges to the provision for credit losses on the Corporation’s

debt securities portfolio;

●

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

the Corporation’s financial condition

or performance;

●

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 further special assessments,

causing

an additional increase in the Corporation’s

non-interest expenses;

●

any need to recognize impairments on the Corporation’s

financial instruments, goodwill, and other intangible assets;

●

residual impacts of the transition away from the London Interbank Offered

Rate (“LIBOR”);

●

the risk

that the

impact

of the

occurrence

of any

of these

uncertainties on

the Corporation’s

capital would

preclude

further

growth of FirstBank and preclude the Corporation’s

Board of Directors (the “Board”) from declaring dividends; and

●

uncertainty as

to whether

FirstBank will

be able

to continue

to satisfy

its regulators

regarding,

among other

things, its

asset

quality,

liquidity

plans,

maintenance

capital

levels,

and

compliance

with

applicable

laws,

regulations

and

requirements.

The Corporation does not undertake, and

specifically disclaims any obligation to update any

“forward-looking statements” to reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities

laws.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

June 30, 2023

December 31, 2022

(In thousands, except for share information)

ASSETS

Cash and due from banks

1,046,534

478,480

Money market investments:

Time deposits with other financial institutions

300

Other short-term investments

700

1,725

Total money market investments

1,000

2,025

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

Securities pledged with creditors’ rights to repledge

79,909

81,103

Other available-for-sale debt securities

5,353,460

5,518,417

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

6,199,630

as of June 30, 2023, and

6,398,197

as of December 31, 2022; ACL of $

433

as of June 30, 2023 and $

458

as of December 31, 2022)

5,433,369

5,599,520

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

of $

8,401

as of June 30, 2023 and $

8,286

as of December 31, 2022 (fair value of $

410,181

as of June 30, 2023 and $

427,115

as of December 31, 2022)

416,325

429,251

Equity securities

48,101

55,289

Total investment securities

5,897,795

6,084,060

Loans, net of ACL of $

267,058

as of June 30, 2023 and $

260,464

as of December 31, 2022

11,452,257

11,292,361

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

14,295

12,306

Total loans, net

11,466,552

11,304,667

Accrued interest receivable on loans and investments

70,368

69,730

Premises and equipment, net

146,640

142,935

Other real estate owned (“OREO”)

31,571

31,641

Deferred tax asset, net

153,925

155,584

Goodwill

38,611

Other intangible assets

17,092

21,118

Other assets

282,367

305,633

Total assets

19,152,455

18,634,484

LIABILITIES

Non-interest-bearing deposits

5,874,261

6,112,884

Interest-bearing deposits

10,945,431

10,030,583

Total deposits

16,819,692

16,143,467

Short-term securities sold under agreements to repurchase

73,934

75,133

Advances from the FHLB:

Short-term

475,000

Long-term

500,000

200,000

Total advances from the FHLB

500,000

675,000

Other long-term borrowings

161,700

183,762

Accounts payable and other liabilities

199,130

231,582

Total liabilities

17,754,456

17,308,944

Commitments and contingencies (See Note 22)

(nil)

STOCKHOLDERS’ EQUITY

Common stock, $

0.10

par value,

2,000,000,000

shares authorized;

223,663,116

shares issued;

179,756,622

shares outstanding as of June 30, 2023 and

182,709,059

as of December 31, 2022

22,366

Additional paid-in capital

962,229

970,722

Retained earnings, includes legal surplus reserve of $

168,484

1,733,497

1,644,209

Treasury stock (at cost),

43,906,494

shares as of June 30, 2023 and

40,954,057

shares as of December 31, 2022

(547,706)

(506,979)

Accumulated other comprehensive loss, net of tax of $

8,468

(772,387)

(804,778)

Total stockholders’ equity

1,397,999

1,325,540

Total liabilities and stockholders’ equity

19,152,455

18,634,484

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands, except per share information)

Interest and dividend income:

Loans

218,066

179,261

428,702

353,048

Investment securities

26,258

26,491

53,368

49,738

Money market investments and interest-bearing cash accounts

7,880

2,873

12,530

3,693

Total interest and dividend income

252,204

208,625

494,600

406,479

Interest expense:

Deposits

41,604

7,694

71,489

15,346

Securities sold under agreements to repurchase:

Short-term

1,328

2,397

Long-term

1,972

4,154

Advances from the FHLB:

Short-term

435

4,776

Long-term

5,613

1,075

8,448

2,138

Other long-term borrowings

3,409

1,698

6,790

3,031

Total interest expense

52,389

12,439

93,900

24,669

Net interest income

199,815

196,186

400,700

381,810

Provision for credit losses - expense (benefit):

Loans and finance leases

20,770

12,665

37,026

(4,324)

Unfunded loan commitments

721

812

616

634

Debt securities

739

(3,474)

(109)

Provision for credit losses - expense (benefit)

22,230

10,003

37,732

(3,799)

Net interest income after provision for credit losses

177,585

186,183

362,968

385,609

Non-interest income:

Service charges and fees on deposit accounts

9,287

9,466

18,828

18,829

Mortgage banking activities

2,860

4,082

5,672

9,288

Gain on early extinguishment of debt

1,605

Insurance commission income

2,747

2,946

7,594

8,221

Card and processing income

11,135

10,300

22,053

19,981

Other non-interest income

8,637

4,147

13,037

7,480

Total non-interest income

36,271

30,941

68,789

63,799

Non-interest expenses:

Employees’ compensation and benefits

54,314

51,304

110,736

100,858

Occupancy and equipment

21,097

21,505

42,283

43,891

Business promotion

4,167

4,042

8,142

7,505

Professional service fees

11,596

12,036

23,569

22,630

Taxes, other than income taxes

5,124

4,689

10,236

9,707

FDIC deposit insurance

2,143

1,466

4,276

3,139

Net gain on OREO operations

(1,984)

(1,485)

(3,980)

(2,205)

Credit and debit card processing expenses

6,540

5,843

11,858

9,964

Communications

1,992

1,978

4,208

4,129

Other non-interest expenses

7,928

6,948

16,857

15,367

Total non-interest expenses

112,917

108,326

228,185

214,985

Income before income taxes

100,939

108,798

203,572

234,423

Income tax expense

30,284

34,103

62,219

77,128

Net income

70,655

74,695

141,353

157,295

Net income attributable to common stockholders

70,655

74,695

141,353

157,295

Net income per common share:

Basic

0.39

0.38

0.79

0.80

Diluted

0.39

0.38

0.78

0.80

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

(Unaudited)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Net income

70,655

74,695

141,353

157,295

Other comprehensive (loss) income, net of tax:

Available-for-sale debt securities:

Net unrealized holding (losses) gains on debt securities

(1)

(54,837)

(175,923)

32,391

(507,757)

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

(54,837)

(175,923)

32,391

(507,757)

Total comprehensive income (loss)

15,818

(101,228)

173,744

(350,462)

(1)

Net unrealized holding (losses) gains on available-for-sale

debt securities have no tax effect because securities

are either tax-exempt, held by an International Banking Entity (“IBE”),

have a full deferred tax asset valuation allowance.

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six-Month Period Ended June 30,

2023

2022

(In thousands)

Cash flows from operating activities:

Net income

141,353

157,295

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

10,071

11,291

Amortization of intangible assets

4,026

4,510

Provision for credit losses - expense (benefit)

37,732

(3,799)

Deferred income tax expense

2,419

41,483

Stock-based compensation

3,997

2,580

Gain on early extinguishment of debt

(1,605)

Unrealized gain on derivative instruments

(291)

(864)

Net gain on disposals or sales, and impairments of premises

and equipment and other assets

(235)

(900)

Net gain on sales of loans and loans held-for-sale valuation adjustments

(989)

(3,965)

Net amortization of discounts, premiums, and deferred loan fees

and costs

686

(5,486)

Originations and purchases of loans held for sale

(88,696)

(143,692)

Sales and repayments of loans held for sale

85,398

157,098

Amortization of broker placement fees

128

Net amortization of premiums and discounts on investment securities

2,117

1,389

Decrease (increase) in accrued interest receivable

1,849

(3,555)

Increase (decrease) in accrued interest payable

9,369

(1,252)

Increase in other assets

(5,566)

(4,235)

(Decrease) increase in other liabilities

(35,307)

11,646

Net cash provided by operating activities

166,456

219,608

Cash flows from investing activities:

Net disbursements on loans held for investment

(226,714)

(186,902)

Proceeds from sales of loans held for investment

3,183

37,565

Proceeds from sales of repossessed assets

26,360

19,941

Purchases of available-for-sale debt securities

(961)

(512,327)

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

debt securities

217,745

354,853

Purchases of held-to-maturity debt securities

(260,082)

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

debt securities

13,832

934

Additions to premises and equipment

(16,211)

(11,841)

Proceeds from sales of premises and equipment and other assets

578

1,138

Net redemptions (purchases) of other investments securities

7,219

(971)

Net cash provided by (used in) investing activities

25,031

(557,692)

Cash flows from financing activities:

Net increase (decrease) in deposits

675,911

(645,417)

Net repayments of short-term borrowings

(476,199)

Repayments of long-term borrowings

(19,795)

(100,000)

Proceeds from long-term borrowings

300,000

Repurchase of outstanding common stock

(53,217)

(152,713)

Dividends paid on common stock

(51,158)

(43,321)

Net cash provided by (used in) financing activities

375,542

(941,451)

Net increase (decrease) in cash and cash equivalents

567,029

(1,279,535)

Cash and cash equivalents at beginning of year

480,505

2,543,058

Cash and cash equivalents at end of period

1,047,534

1,263,523

Cash and cash equivalents include:

Cash and due from banks

1,046,534

1,261,590

Money market investments

1,000

1,933

1,047,534

1,263,523

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY

(Unaudited)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands, except per share information)

Common Stock

22,366

Additional Paid-In Capital:

Balance at beginning of period

959,912

966,771

970,722

972,547

Stock-based compensation expense

1,922

1,398

3,997

2,580

Common stock reissued under stock-based compensation plan

(23)

(13,139)

(7,003)

Restricted stock forfeited

395

649

Balance at end of period

962,229

968,217

962,229

968,217

Retained Earnings:

Balance at beginning of period

1,688,176

1,489,995

1,644,209

1,427,295

Impact of adoption of Accounting Standards Update (“ASU”) 2022-02 (See

Note 1)

(1,357)

Net income

70,655

74,695

141,353

157,295

Dividends on common stock ($

0.14

per share and $

0.12

per share for the quarters ended

June 30,

2023 and 2022, respectively; $

0.28

per share and $

0.22

for the

for the six-month periods ended June 30,

2023 and 2022, respectively)

(25,334)

(23,356)

(50,708)

(43,256)

Balance at end of period

1,733,497

1,541,334

1,733,497

1,541,334

Treasury Stock (at cost):

Balance at beginning of period

(547,311)

(282,197)

(506,979)

(236,442)

Common stock repurchases (See Note 14)

(100,000)

(53,217)

(152,713)

Common stock reissued under stock-based compensation plan

13,139

7,003

Restricted stock forfeited

(395)

(71)

(649)

(93)

Balance at end of period

(547,706)

(382,245)

(547,706)

(382,245)

Accumulated Other Comprehensive Loss, net

of tax:

Balance at beginning of period

(717,550)

(415,833)

(804,778)

(83,999)

Other comprehensive (loss) income, net of tax

(54,837)

(175,923)

32,391

(507,757)

Balance at end of period

(772,387)

(591,756)

(772,387)

(591,756)

Total stockholders’ equity

1,397,999

1,557,916

1,397,999

1,557,916

The accompanying notes are an integral part of these 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 (“VIEs”) and Servicing Assets

Note 8 –

Deposits

Note 9 –

Securities Sold Under Agreements to Repurchase (Repurchase

Agreements)

Note 10 –

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

Note 11 –

Other Long-Term Borrowings

Note 12 –

Earnings per Common Share

Note 13 –

Stock-Based Compensation

Note 14 –

Stockholders’ Equity

Note 15 –

Accumulated 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 –

Segment Information

Note 21 –

Supplemental Statement of Cash Flows 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)

for

the

quarter

and

six-month

period

ended

June

30,

2023

(the

“unaudited

consolidated financial

statements”) of

First BanCorp.

(the “Corporation”)

have been

prepared in

conformity with

the accounting

policies

stated

the

Corporation’s

Audited

Consolidated

Financial

Statements

for

the

fiscal

year

ended

December

31,

2022

(the

“audited

consolidated financial

statements”) included

in the

2022 Annual

Report on

Form 10-K,

as updated

by the

information contained

in this

report.

Certain

information

and

note

disclosures

normally

included

the

financial

statements

prepared

accordance

with

generally

accepted accounting principles in the United States of America

(“GAAP”) have been condensed or omitted from these statements pursuant

the

rules

and

regulations

the

SEC

and,

accordingly,

these

financial

statements

should

read

conjunction

with

the

audited

consolidated financial statements, which are included in the 2022 Annual Report on Form 10-K. All adjustments (consisting only of normal

recurring adjustments) that are, in the opinion of management,

necessary for a 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.

The results

of operations

for the

quarter and

six-month period

ended June

30, 2023

are not

necessarily indicative

of the

results to

expected

for the

entire year.

Adoption of New Accounting Requirements

ASU 2022-02,

“Financial

Instruments

– Credit Losses

(Topic 326): Troubled

Debt Restructurings

(“TDR”) and

Vintage Disclosures”

Effective

January

2023,

the

Corporation

adopted

ASU

2022-02,

which

removed

the

existing

measurement

and

disclosure

requirements

for

TDR

loans,

added

additional

disclosure

requirements

modifications

provided

borrowers

experiencing

financial difficulty regardless of

whether the modification

is accounted for

as a new

loan, and amends

the guidance on vintage

disclosures

require

disclosure

gross

charge-offs

year

origination.

Prior

adoption,

change

contractual

terms

loan

where

borrower was experiencing

financial difficulty and

received a concession

not available through other

sources was required

to be disclosed

as a

TDR, whereas now

a borrower that

is experiencing financial

difficulty and there

has been a

direct change

to the timing

or amount of

contractual

cash

flows

the

form

principal

forgiveness,

interest

rate

reduction,

other-than-insignificant

payment

delay,

term

extension, or any combination of these types of loan modifications in the current period needs to be disclosed. ASU 2022-02 did not amend

the definition

of financial

difficulty.

Modifications of

receivables are

within the

scope of

ASU 2022-02 if

they are

accounted for

in accordance

with Accounting

Standards

Codification

(“ASC”)

310-20.

such,

finance

leases

are

not

within

the

scope

ASU

2022-02.

Such

modifications

are

evaluated

following

the

requirements

ASC

310-20

determine

whether

they

should

accounted

for

new

loan

continuation

the

existing loan.

ASU 2022-02

also eliminated

the requirement

to use a

discounted cash

flow method for

TDRs for

the determination of

the ACL,

and

allows

the

option

non-discounted

cash

flow

portfolio-based

approach

for

modified

loans

borrowers

experiencing

financial

difficulties.

The

Corporation

elected

apply

non-discounted

cash

flow,

portfolio-based

ACL

approach

for

modified

loans

borrowers

experiencing financial difficulties for all portfolios,

using a modified retrospective transition method. The adoption

resulted in a net increase

the

ACL

approximately

2.1

million

and

decrease

retained

earnings

approximately

1.3

million,

after

tax,

predominantly

driven by residential mortgage loans. The amount of defined modifications given to borrowers experiencing financial difficulty is disclosed

in Note 3 – Loans Held

for Investment, along with the financial impact of those

modifications.

The Corporation was not impacted by the adoption

of the following ASUs during 2023:

●

ASU 2022-01, “Derivatives and Hedging

(Topic 815): Fair Value Hedging – Portfolio Layer Method”

●

ASU 2021-08, “Business

Combinations (Topic 805):

Accounting for

Contract Assets and

Contract Liabilities

From Contracts

With Customers”

Recently

Issued

Accounting

Standards

Not

Yet

Effective

Not

Yet

Adopted

Standard

Description

Effective Date

Effect on the financial statements

ASU 2023-02, "Investments -

Equity Method and Joint Ventures

(Topic 323): Accounting for

Investments in Tax Credit

Structures Using the Proportional

Amortization Method"

In March 2023, the FASB issued

ASU 2023-02 which, among other

things, allows tax equity

investments, regardless of the tax

credit program from which the

income tax credits are received, to

be accounted for using the

proportional amortization method if

certain conditions are met and

requires specific disclosures of

such investments. The election

needs to be made on a tax-credit-

program-by-tax-credit-program

basis.

January 1, 2024. Early adoption is

permitted in any interim period.

The Corporation does not expect to

be impacted by the amendments of

this ASU since it does not hold tax

equity investments.

ASU 2023-01, "Leases (Topic

842): Common Control

Arrangements"

In March 2023, the FASB issued

ASU 2023-01 which, among other

things, generally requires a lessee

in a common-control lease

arrangement to amortize leasehold

improvements over the useful life

regardless of the lease term, subject

to certain exceptions. In addition, a

lessee that no longer controls the

use of the underlying asset will

account for the transfer of the

underlying asset as an adjustment

to equity.

January 1, 2024. Early adoption is

permitted for both interim and

annual financial statements that

have not yet been made available

for issuance.

The Corporation does not expect to

be materially impacted by the

adoption of this ASU during the first

quarter of 2024.

For

other

issued

accounting

standards

not

yet

effective

not

yet

adopted,

see

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, to the audited consolidated financial

statements included in the 2022 Annual Report on Form 10-K.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 2 – DEBT SECURITIES

Available-for-Sale

Debt Securities

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

available-for-sale

debt securities by contractual maturities as of June 30, 2023 were as follows:

June 30, 2023

Amortized cost

(1)

Gross

ACL

Fair value

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

27,671

705

26,966

0.61

After 1 to 5 years

120,787

8,084

112,703

0.69

U.S. government-sponsored entities (“GSEs”) obligations:

Due within one year

224,161

5,089

219,072

0.42

After 1 to 5 years

2,344,874

209,839

2,135,091

0.85

After 5 to 10 years

11,267

871

10,400

3.16

After 10 years

10,844

10,865

5.38

Puerto Rico government obligations:

After 10 years

(2)

3,254

794

349

2,111

United States and Puerto Rico government obligations

2,742,858

225,383

349

2,517,208

0.83

Mortgage-backed securities (“MBS”):

Residential MBS:

Freddie Mac (“FHLMC”) certificates:

After 1 to 5 years

20,047

1,191

18,856

1.97

After 5 to 10 years

171,682

17,242

154,440

1.58

After 10 years

1,038,513

180,505

858,008

1.41

1,230,242

198,938

1,031,304

1.44

Ginnie Mae (“GNMA”) certificates:

Due within one year

2.53

After 1 to 5 years

20,426

1,257

19,169

1.25

After 5 to 10 years

32,172

2,952

29,220

1.70

After 10 years

219,768

26,660

193,115

2.63

272,367

30,869

241,505

2.42

Fannie Mae (“FNMA”) certificates:

After 1 to 5 years

22,434

1,399

21,035

1.72

After 5 to 10 years

338,605

31,862

306,743

1.75

After 10 years

1,102,263

178,364

923,937

1.37

1,463,302

211,625

1,251,715

1.46

Collateralized mortgage obligations (“CMOs”) issued

or guaranteed by the FHLMC, FNMA, and GNMA:

After 10 years

288,194

58,267

229,927

1.48

Private label:

After 10 years

7,498

2,168

5,246

7.61

Total Residential MBS

3,261,603

501,867

2,759,697

1.55

Commercial MBS:

After 1 to 5 years

44,311

7,308

37,003

2.15

After 5 to 10 years

25,656

3,430

22,226

2.13

After 10 years

125,202

27,967

97,235

1.40

Total Commercial MBS

195,169

38,705

156,464

1.67

Total MBS

3,456,772

540,572

2,916,161

1.56

Total available-for-sale debt securities

6,199,630

127

765,955

433

5,433,369

1.23

(1)

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

10.7

million as of June 30, 2023 reported as part of accrued interest receivable on loans and investment securities in the

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

(2)

Consists of a residential pass-through MBS issued by the 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 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

available-for-sale

debt securities by contractual maturities as of December 31, 2022

were as follows:

December 31, 2022

Amortized cost

(1)

Gross

ACL

Fair value

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

7,493

309

7,184

0.22

After 1 to 5 years

141,366

9,675

131,691

0.70

U.S. GSEs’ obligations:

Due within one year

129,018

4,036

124,982

0.32

After 1 to 5 years

2,395,273

227,724

2,167,571

0.83

After 5 to 10 years

56,251

7,670

48,594

1.54

After 10 years

12,170

12,206

4.62

Puerto Rico government obligations:

After 10 years

(2)

3,331

755

375

2,201

United States and Puerto Rico government obligations

2,744,902

250,169

375

2,494,429

0.83

MBS:

Residential MBS:

FHLMC certificates:

After 1 to 5 years

4,235

169

4,066

2.33

After 5 to 10 years

201,072

18,709

182,363

1.55

After 10 years

1,092,289

186,558

905,731

1.38

1,297,596

205,436

1,092,160

1.41

GNMA certificates:

Due within one year

1.73

After 1 to 5 years

15,508

622

14,886

2.00

After 5 to 10 years

45,322

3,809

41,514

1.31

After 10 years

232,632

27,169

205,514

2.47

293,467

31,600

261,919

2.27

FNMA certificates:

After 1 to 5 years

9,685

521

9,164

1.76

After 5 to 10 years

358,346

31,620

326,726

1.68

After 10 years

1,186,635

124

186,757

1,000,002

1.38

1,554,666

124

218,898

1,335,892

1.45

CMOs issued or guaranteed by the FHLMC, FNMA,

and GNMA:

After 10 years

302,232

56,539

245,693

1.44

Private label:

After 10 years

7,903

2,026

5,794

6.83

Total Residential MBS

3,455,864

176

514,499

2,941,458

1.52

Commercial MBS:

After 1 to 5 years

30,578

4,463

26,115

2.43

After 5 to 10 years

44,889

5,603

39,286

1.89

After 10 years

121,464

23,732

97,732

1.23

Total Commercial MBS

196,931

33,798

163,133

1.56

Total MBS

3,652,795

176

548,297

3,104,591

1.52

Other

Due within one year

500

0.84

Total available-for-sale debt securities

6,398,197

247

798,466

458

5,599,520

1.22

(1)

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

11.1

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

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

(2)

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

status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

loss

available-for-sale

debt

securities

presented

part

accumulated

other

comprehensive

loss

the

consolidated statements of financial condition.

The

following

tables

present

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 June 30, 2023 and December 31, 2022. The tables also include debt securities for

which an ACL was recorded.

As of June 30, 2023

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

2,887

2,496,214

224,585

2,499,101

224,589

Puerto Rico government obligations

2,111

794

(1)

2,111

794

MBS:

Residential MBS:

FHLMC

19,638

959

1,011,666

197,979

1,031,304

198,938

GNMA

50,543

1,335

189,454

29,534

239,997

30,869

FNMA

42,650

2,361

1,204,127

209,264

1,246,777

211,625

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

378

229,549

58,257

229,927

58,267

Private label

5,246

2,168

(1)

5,246

2,168

Commercial MBS

15,403

370

141,061

38,335

156,464

38,705

131,499

5,039

5,279,428

760,916

5,410,927

765,955

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of June 30, 2023, the PRHFA

bond and private label MBS had an ACL of $

0.4

million and

0.1

million, respectively.

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

298,313

18,057

2,174,724

231,357

2,473,037

249,414

Puerto Rico government obligations

2,201

755

(1)

2,201

755

MBS:

Residential MBS:

FHLMC

260,524

45,424

831,637

160,012

1,092,161

205,436

GNMA

74,829

3,433

179,854

28,167

254,683

31,600

FNMA

405,977

49,479

920,200

169,419

1,326,177

218,898

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

45,370

6,735

200,323

49,804

245,693

56,539

Private label

5,794

2,026

(1)

5,794

2,026

Commercial MBS

30,179

2,215

132,953

31,583

163,132

33,798

1,115,192

125,343

4,447,686

673,123

5,562,878

798,466

(1)

Unrealized losses do not include the credit loss component recorded

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

PRHFA bond and private label MBS

had an ACL of $

0.4

million

and $

0.1

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Assessment for Credit Losses

Debt securities

issued by

U.S. government

agencies,

U.S. GSEs,

and

the U.S.

Treasury,

including

notes and

MBS, accounted

for

substantially

all

the

total

available-for-sale

portfolio

June

30,

2023,

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,

June

30,

2023,

the

Corporation

did

not

have

the

intent to

sell these

U.S. government

and agencies

debt securities

and determined

that it

was likely

that it

will not

be required

to sell

these

securities

before

their

anticipated

recovery,

the

Corporation

does

not

consider

impairments

these

securities

credit

related. 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.

Private label MBS

held as part

of the Corporation’s

available for sale

portfolio consist of

trust certificates issued

by an unaffiliated

party

backed

fixed-rate,

single-family

residential

mortgage

loans

the

U.S.

mainland

with

original

FICO

scores

over

700

and

moderate loan-to-value

ratios (under

%), as well as

moderate delinquency levels.

Upon the discontinuance

of LIBOR after

June 30,

2023,

and

following

the

provisions

the

Adjustable

Interest

Rate

Act

(the

“LIBOR

Act”)

and

Regulation

ZZ,

the

interest

rate

these private

label MBS

will transition

during

the third

quarter of

2023 from

3-month LIBOR

plus a

spread to

3-month CME

Term

Secured

Overnight

Financing

Rate

(“SOFR”)

plus

tenor

spread

adjustment

0.26161

and

the

original

spread

limited

the

weighted-average

coupon of

the underlying

collateral. 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 approach,

expected cash flows (interest

and principal) were discounted

at the Treasury

yield curve

as of the reporting

date. See Note

18 – Fair

Value

for the significant

assumptions used in

the valuation of

the private label

MBS as of

June 30, 2023 and December 31, 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

For the residential

pass-through MBS issued by

the PRHFA

held as part of

the Corporation’s

available-for-sale portfolio

backed by

second

mortgage

residential

loans

Puerto

Rico,

the

ACL

was

determined

based

discounted

cash

flow

methodology

that

considered

the structure

and terms

of the

debt security.

The expected

cash flows

were discounted

at the

Treasury

yield curve

plus a

spread as

of the

reporting date

and compared

to the

amortized cost.

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. PRHFA,

not the

Puerto Rico

government, provides

a guarantee

in the event

of default

and subsequent

foreclosure of

the properties underlying

the second

mortgage loans

and its

ability to

honor such

guarantee will

depend on,

among other

factors, its

financial condition

at the

time such obligation

becomes due and payable.

Deterioration of the Puerto

Rico economy or fiscal

health of the PRHFA

could impact

the value of this security,

resulting in additional losses to the Corporation.

The following tables

present a roll-forward

by major security

type for the

quarters and six-month

periods ended June

30, 2023 and

2022 of the ACL on available-for-sale debt

securities:

Quarter Ended

June 30,

2023

Six-Month Period Ended June 30,

2023

Private label

MBS

Puerto Rico

Government

Obligations

Total

Private label

MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

366

449

375

458

Provision for credit losses - benefit

(16)

(25)

ACL on available-for-sale debt securities

350

433

350

433

Quarter Ended June 30,

2022

Six-Month Period Ended June 30,

2022

Private label

MBS

Puerto Rico

Government

Obligations

Total

Private label

MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

403

308

711

797

308

1,105

Provision for credit losses - (benefit) expense

(113)

(35)

(501)

(423)

Net charge-offs

(6)

ACL on available-for-sale debt securities

290

386

676

290

386

676

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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 June 30, 2023

and December 31, 2022 were as follows

June 30, 2023

Amortized cost

(1)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

1,205

1,176

5.90

After 1 to 5 years

42,736

661

1,360

42,037

689

6.93

After 5 to 10 years

56,160

2,733

446

58,447

3,209

7.44

After 10 years

66,023

2,023

64,000

4,477

8.54

Total Puerto Rico municipal bonds

166,124

3,394

3,858

165,660

8,401

7.74

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

18,836

1,203

17,633

3.03

After 10 years

18,936

906

18,030

4.33

37,772

2,109

35,663

3.68

GNMA certificates:

After 10 years

17,765

1,046

16,719

3.35

FNMA certificates:

After 10 years

69,956

3,161

66,795

4.17

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA

After 10 years

30,197

1,658

28,539

3.49

Total Residential MBS

155,690

7,974

147,716

3.83

Commercial MBS:

After 1 to 5 years

9,533

479

9,054

3.48

After 10 years

93,379

5,628

87,751

3.15

Total Commercial MBS

102,912

6,107

96,805

3.18

Total MBS

258,602

14,081

244,521

3.57

Total held-to-maturity debt securities

424,726

3,394

17,939

410,181

8,401

5.20

(1)

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

6.8

million as of June 30, 2023 reported as part of accrued interest receivable on loans and investment securities in the

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

December 31, 2022

Amortized cost

(1)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

1,202

1,187

5.20

After 1 to 5 years

42,530

886

1,076

42,340

656

6.34

After 5 to 10 years

55,956

3,182

360

58,778

3,243

6.29

After 10 years

66,022

1,318

64,704

4,385

7.10

Total held-to-maturity debt securities

165,710

4,068

2,769

167,009

8,286

6.62

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

21,443

746

20,697

3.03

After 10 years

19,362

888

18,474

4.21

40,805

1,634

39,171

3.59

GNMA certificates:

After 10 years

19,131

943

18,188

3.35

FNMA certificates:

After 10 years

72,347

3,155

69,192

4.14

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA

After 10 years

34,456

1,424

33,032

3.49

Total Residential MBS

166,739

7,156

159,583

3.78

Commercial MBS:

After 1 to 5 years

9,621

396

9,225

3.48

After 10 years

95,467

4,169

91,298

3.15

Total Commercial MBS

105,088

4,565

100,523

3.18

Total MBS

271,827

11,721

260,106

3.55

Total held-to-maturity debt securities

437,537

4,068

14,490

427,115

8,286

4.71

(1)

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

5.5

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

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The

following

tables

present

the

Corporation’s

held-to-maturity

debt

securities’

fair

value

and

gross

unrecognized

losses,

aggregated by

category and

length of

time that

individual securities

had been

in a

continuous unrecognized

loss position,

as of

June

30, 2023 and December 31, 2022, including debt securities for which

an ACL was recorded:

As of June 30, 2023

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

107,673

3,858

107,673

3,858

MBS:

Residential MBS:

FHLMC certificates

35,663

2,109

35,663

2,109

GNMA certificates

16,719

1,046

16,719

1,046

FNMA certificates

66,795

3,161

66,795

3,161

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

28,539

1,658

28,539

1,658

Commercial MBS

9,054

479

87,751

5,628

96,805

6,107

Total held-to-maturity debt securities

156,770

8,453

195,424

9,486

352,194

17,939

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

98,797

2,769

98,797

2,769

MBS:

Residential MBS:

FHLMC certificates

39,171

1,634

39,171

1,634

GNMA certificates

18,188

943

18,188

943

FNMA certificates

69,192

3,155

69,192

3,155

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

33,032

1,424

33,032

1,424

Commercial MBS

100,523

4,565

100,523

4,565

Total held-to-maturity debt securities

260,106

11,721

98,797

2,769

358,903

14,490

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

GSEs and

Puerto Rico

municipal bonds.

The Corporation

does not

recognize an

ACL for MBS

issued by

GSEs 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

the

product

cumulative

and

LGD,

and

the

amortized

cost

basis

the

bonds

over

their

remaining expected

life as

described in

Note 1

– Nature

of Business and

Summary of

Significant Accounting

Policies, to

the audited

consolidated financial statements included in the 2022 Annual Report on

Form 10-K.

The Corporation

performs periodic

credit quality

reviews on

these issuers.

All of

the Puerto

Rico municipal

bonds were

current as

to scheduled contractual payments as of June 30, 2023.

A security is considered to be past due once it is 30 days contractually

past due

under the

terms of the

agreement. The

ACL of Puerto

Rico municipal

bonds increased

to $

8.4

million as of

June 30, 2023,

from $

8.3

million as of December 31, 2022, mostly driven by updated financial information

of certain bond issuers received during 2023.

The following tables present

the activity in the

ACL for held-to-maturity debt

securities by major security

type for the quarters

and

six-month periods ended June 30, 2023 and 2022:

Puerto Rico Municipal Bonds

Quarter Ended

Six-Month Period Ended

June 30,

2023

June 30,

2023

(In thousands)

Beginning Balance

7,646

8,286

Provision for credit losses - expense

755

115

ACL on held-to-maturity debt securities

8,401

Puerto Rico Municipal Bonds

Quarter Ended

Six-Month Period Ended

June 30,

2022

June 30,

2022

(In thousands)

Beginning Balance

12,324

8,571

Provision for credit losses - (benefit) expense

(3,439)

314

ACL on held-to-maturity debt securities

8,885

During the

second quarter

of 2019,

the oversight

board established

by PROMESA

announced

the designation

of 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, or measures included

in its fiscal plan or

fiscal plans of other

government entities. Given the inherent

uncertainties about the

fiscal situation of the Puerto

Rico central government and

the measures taken, or to

be taken, by other government

entities in response

economic

and

fiscal

challenges,

the

Corporation

cannot be

certain

whether

future charges

the ACL

these

securities will

required.

From

time

time,

the

Corporation

has

held-to-maturity

securities

with

original

maturity

three

months

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

money

market

investments

the

consolidated

statements

financial

condition. As

June

30,

2023

and

December

31,

2022,

the

Corporation

had

outstanding

held-to-maturity

securities

that

were

classified as cash and cash equivalents.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Credit Quality Indicators:

The

held-to-maturity

debt

securities

portfolio

consisted

MBS

issued

GSEs

and

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form.

previously

mentioned,

the

Corporation

expects

credit

losses

GSEs

MBS.

The

Puerto

Rico municipal bonds are accounted

for as securities but are underwritten

as loans with features that are typically

found in commercial

loans. Accordingly,

the Corporation monitors the credit quality of these

municipal bonds through the use of internal

credit-risk ratings,

which are

generally updated

on a

quarterly basis.

The Corporation

considers a

municipal bond

as a

criticized asset

if its

risk rating

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,

see

Note

–

Debt

Securities, to the audited consolidated financial statements included

in the 2022 Annual Report on Form 10-K.

The

Corporation

periodically

reviews

its Puerto

Rico

municipal

bonds

evaluate

they are

properly

classified,

and to

measure

credit losses on

these securities. The

frequency of these

reviews will depend

on the amount

of the aggregate

outstanding debt, and

the

risk rating classification of the obligor.

The

Corporation

has

Loan

Review

Group

that

reports

directly

the

Corporation’s

Risk

Management

Committee

and

administratively

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities.

The objective

these

loan

reviews is

assess accuracy

of the

Bank’s

determination

and

maintenance

loan

risk

rating

and

its

adherence

lending

policies,

practices

and

procedures.

The

monitoring

performed

this

group

contributes

the

assessment

compliance

with

credit

policies

and

underwriting

standards,

the

determination

the

current

level

credit

risk,

the

evaluation of

the effectiveness

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

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

process reviews to the Risk Management Committee.

As of June 30, 2023 and December 31, 2022, all Puerto Rico municipal bonds

classified as held-to-maturity were classified as Pass.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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 locations

as of the indicated

dates:

As of June 30,

As of December 31,

2023

2022

(In thousands)

Puerto Rico and Virgin Islands region:

Residential mortgage loans, mainly secured by first mortgages

2,352,310

2,417,900

Construction loans

69,219

34,772

Commercial mortgage loans

1,800,289

1,834,204

Commercial and Industrial ("C&I") loans

2,011,774

1,860,109

Consumer loans

3,487,454

3,317,489

Loans held for investment

9,721,046

9,464,474

Florida region:

Residential mortgage loans, mainly secured by first mortgages

441,480

429,390

Construction loans

94,779

98,181

Commercial mortgage loans

519,780

524,647

C&I loans

934,427

1,026,154

Consumer loans

7,803

9,979

Loans held for investment

1,998,269

2,088,351

Total:

Residential mortgage loans, mainly secured by first mortgages

2,793,790

2,847,290

Construction loans

163,998

132,953

Commercial mortgage loans

2,320,069

2,358,851

C&I loans

(1)

2,946,201

2,886,263

Consumer loans

3,495,257

3,327,468

Loans held for investment

(2)

11,719,315

11,552,825

ACL on loans and finance leases

(267,058)

(260,464)

Loans held for investment, net

11,452,257

11,292,361

(1)

As of June 30, 2023 and December 31, 2022, includes

821.4

million and $

838.5

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

primary source of repayment at origination was not dependent

upon the real estate.

(2)

Includes accretable fair value net purchase discounts of $

27.1

million and $

29.3

million as of June 30, 2023 and December 31, 2022, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The Corporation’s

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL,

portfolio classes as of June 30, 2023 and December 31, 2022 are as follows:

As of June 30, 2023

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

69,242

1,605

34,038

104,885

Conventional residential mortgage loans

(2) (6)

2,613,464

29,274

12,915

33,252

2,688,905

1,861

Commercial loans:

Construction loans

(6)

161,248

1,062

1,677

163,998

973

Commercial mortgage loans

(2) (6)

2,287,864

4,551

565

5,553

21,536

2,320,069

11,834

C&I loans

2,928,957

1,827

1,186

5,037

9,194

2,946,201

1,816

Consumer loans:

Auto loans

1,803,442

44,425

8,281

11,311

1,867,459

3,464

Finance leases

778,649

8,015

1,564

2,483

790,711

496

Personal loans

359,898

4,363

1,985

1,353

367,599

Credit cards

305,434

3,734

2,620

5,668

317,456

Other consumer loans

147,419

2,191

1,207

1,215

152,032

Total loans held for investment

11,455,617

70,168

48,298

63,211

82,021

11,719,315

20,479

(1)

It is the Corporation's policy to report delinquent Federal Housing Authority (“FHA”)/Veterans Affairs (“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 $

19.9

million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of June 30, 2023.

(2)

Includes purchased credit deteriorated ("PCD") loans previously accounted for under 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 $

9.5

million as of June 30, 2023 ($

8.5

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 $

6.5

million as of June 30, 2023. 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 $

9.8

million as of June 30, 2023, primarily nonaccrual residential mortgage loans and C&I loans.

(5)

Includes $

0.3

million of nonaccrual C&I loans with no ACL in the Florida region as of June 30, 2023.

(6)

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, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of June 30, 2023 amounted to $

6.6

million, $

62.9

million, $

1.9

million, and $

0.2

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

As of December 31, 2022

Days Past Due and Accruing

Current

30-59

60-89

90+

(1)(2)(3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

67,116

2,586

48,456

118,158

Conventional residential mortgage loans

(2) (6)

2,643,909

25,630

16,821

42,772

2,729,132

2,292

Commercial loans:

Construction loans

130,617

128

2,208

132,953

977

Commercial mortgage loans

(2) (6)

2,330,094

300

2,367

3,771

22,319

2,358,851

15,991

C&I loans

2,868,989

1,984

1,128

6,332

7,830

2,886,263

3,300

Consumer loans:

Auto loans

1,740,271

40,039

7,089

10,672

1,798,071

2,136

Finance leases

707,646

7,148

1,791

1,645

718,230

330

Personal loans

346,366

3,738

1,894

1,248

353,246

Credit cards

301,013

3,705

2,238

4,775

311,731

Other consumer loans

141,687

1,804

1,458

1,241

146,190

Total loans held for investment

11,277,708

58,718

46,181

80,283

89,935

11,552,825

25,026

(1)

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

nonaccrual loans. The Corporation continues

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

28.2

million of residential mortgage loans

guaranteed by the FHA that were over 15 months delinquent as of December 31, 2022.

(2)

Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption

of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing

and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $

12.0

million as of December 31, 2022 ($

11.0

million conventional

residential mortgage loans and $

1.0

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

(3)

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

10.3

million as of December 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to

repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.3

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

(5)

Includes $

0.3

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

(6)

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

by the Federal

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

government-guaranteed loans,

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

6.1

million, $

65.2

million, and $

1.6

million,

respectively.

When

loan

is placed

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

1.1

million

for

the

quarter

and

six-month

period

ended

June

30,

2023,

respectively,

compared

with

0.3

million and $

0.7

million for the quarter

and six-month period ended

June 30, 2022, respectively.

For the quarter and

six-month period

ended

June

30,

2023,

the

cash

interest

income

recognized

nonaccrual

loans

amounted

0.5

million

and

1.0

million,

respectively, compared

to $

0.3

million and $

0.7

million for the quarter and six-month period ended June 30, 2022, respectively.

As of

June

30,

2023,

the recorded

investment

residential

mortgage

loans collateralized

residential

real

estate property

that

were in

the process

of foreclosure

amounted to

50.9

million, including

21.5

million of

FHA/VA

government-guaranteed

mortgage

loans, and

7.2

million of

PCD loans

acquired prior

to the

adoption, on

January 1,

2020, of

CECL.

The Corporation

commences the

foreclosure

process

residential

real

estate

loans

when

borrower

becomes

120

days

delinquent.

Foreclosure

procedures

and

timelines

vary

depending

whether

the

property

located

judicial

non-judicial

state.

Occasionally,

foreclosures

may

delayed due to, among other reasons, mandatory mediations, bankruptcy,

court delays, and title issues.

Credit Quality Indicators:

The Corporation

categorizes loans

into risk

categories based

on relevant

information

about the

ability of

the borrowers

to service

their debt

such as

current financial

information, historical

payment experience,

credit documentation,

public information,

and current

economic

trends,

among

other

factors.

The

Corporation

analyzes

non-homogeneous

loans,

such

as commercial

mortgage,

C&I,

and

construction

loans

individually

classify

the

loans’

credit

risk.

mentioned

above,

the

Corporation

periodically

reviews

its

commercial

and

construction

loans

evaluate

they

are

properly

classified.

The

frequency

these

reviews

will

depend

the

amount of

the aggregate

outstanding debt,

and the

risk rating

classification of

the obligor.

In addition,

during the

renewal and

annual

review process of

applicable credit facilities, the

Corporation evaluates the

corresponding loan grades.

The Corporation uses

the same

definition

for

risk

ratings

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities,

discussed in

Note 3

– Debt

Securities, to

the audited

consolidated financial

statements included

in the

2022 Annual

Report on

Form

10-K.

For residential mortgage and consumer loans, the Corporation also evaluates

credit quality based on its interest accrual status.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and by

origination

year based

on the

internal credit

-risk category

as of

June 30,

2023, the

gross charge

-offs for

the six-month

period ended

June 30,

2023 by

portfolio classes

and by

origination year,

and the

amortized cost

of commercial

and construction

loans by

portfolio

classes based on the internal credit-risk category as of December 31,

2022, were as follows:

��

As of June 30,

2023

Puerto Rico and Virgin Islands region

Term Loans

As of December 31, 2022

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

29,645

22,238

11,093

3,887

66,863

31,879

Criticized:

Special Mention

Substandard

2,349

2,356

2,893

Doubtful

Loss

Total construction loans

29,645

22,245

11,093

6,236

69,219

34,772

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

94,161

385,980

139,699

322,212

283,938

381,556

427

1,607,973

1,655,728

Criticized:

Special Mention

4,487

33,698

118,636

156,821

145,415

Substandard

129

2,847

32,519

35,495

33,061

Doubtful

Loss

Total commercial mortgage loans

94,161

390,596

139,699

355,910

286,785

532,711

427

1,800,289

1,834,204

Charge-offs on commercial mortgage loans

106

C&I

Risk Ratings:

Pass

113,567

297,329

193,851

178,144

299,435

222,553

649,354

1,954,233

1,789,572

Criticized:

Special Mention

508

12,709

22,537

35,754

43,224

Substandard

389

634

13,797

6,682

285

21,787

27,313

Doubtful

Loss

Total C&I loans

113,567

297,329

194,240

178,778

313,740

241,944

672,176

2,011,774

1,860,109

Charge-offs on C&I loans

211

266

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

As of June 30,

2023

Term Loans

As of December 31, 2022

Florida region

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

47,557

47,190

94,779

98,181

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

47,557

47,190

94,779

98,181

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

6,258

184,611

69,659

40,608

51,005

122,449

19,642

494,232

503,184

Criticized:

Special Mention

13,156

11,224

24,380

20,295

Substandard

1,168

Doubtful

Loss

Total commercial mortgage loans

6,258

184,611

69,659

41,776

64,161

133,673

19,642

519,780

524,647

Charge-offs on commercial mortgage loans

C&I

Risk Ratings:

Pass

45,172

272,282

153,401

74,535

173,170

56,918

117,134

892,612

979,151

Criticized:

Special Mention

19,580

5,976

11,403

36,959

17,905

Substandard

652

193

2,825

300

3,970

29,098

Doubtful

886

Loss

Total C&I loans

45,172

272,282

172,981

75,187

179,339

72,032

117,434

934,427

1,026,154

Charge-offs on C&I loans

6,202

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

As of June 30,

2023

Total

Term Loans

As of December 31, 2022

Amortized Cost Basis by Origination Year (1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

29,677

69,795

58,283

3,887

161,642

130,060

Criticized:

Special Mention

Substandard

2,349

2,356

2,893

Doubtful

Loss

Total construction loans

29,677

69,802

58,283

6,236

163,998

132,953

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

100,419

570,591

209,358

362,820

334,943

504,005

20,069

2,102,205

2,158,912

Criticized:

Special Mention

4,487

33,698

13,156

129,860

181,201

165,710

Substandard

129

1,168

2,847

32,519

36,663

34,229

Doubtful

Loss

Total commercial mortgage loans

100,419

575,207

209,358

397,686

350,946

666,384

20,069

2,320,069

2,358,851

Charge-offs on commercial mortgage loans

106

C&I

Risk Ratings:

Pass

158,739

569,611

347,252

252,679

472,605

279,471

766,488

2,846,845

2,768,723

Criticized:

Special Mention

19,580

6,484

24,112

22,537

72,713

61,129

Substandard

389

1,286

13,990

9,507

585

25,757

56,411

Doubtful

886

Loss

Total C&I loans

158,739

569,611

367,221

253,965

493,079

313,976

789,610

2,946,201

2,886,263

Charge-offs on C&I loans

6,413

6,468

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The following

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

based on

accrual

status

June

30,

2023,

the

gross

charge-offs

for

the

six-month

period

ended

June

30,

2023

by portfolio

classes

and

origination year,

and the amortized

cost of residential

mortgage loans by

portfolio classes

based on

accrual status as

of December

31,

2022:

As of June 30,

2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

118

691

689

782

1,117

100,760

104,157

117,416

Non-Performing

Total FHA/VA

government-guaranteed loans

118

691

689

782

1,117

100,760

104,157

117,416

Conventional residential mortgage loans:

Accrual Status:

Performing

61,153

170,239

73,033

30,819

45,799

1,841,296

2,222,339

2,265,013

Non-Performing

171

25,608

25,814

35,471

Total conventional residential mortgage loans

61,153

170,239

73,068

30,819

45,970

1,866,904

2,248,153

2,300,484

Total:

Accrual Status:

Performing

61,271

170,930

73,722

31,601

46,916

1,942,056

2,326,496

2,382,429

Non-Performing

171

25,608

25,814

35,471

Total residential mortgage loans in Puerto Rico

and Virgin Islands Region

61,271

170,930

73,757

31,601

47,087

1,967,664

2,352,310

2,417,900

Charge-offs on residential mortgage loans

2,126

2,129

(1)

Excludes accrued interest receivable.

As of June 30,

2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

728

742

Non-Performing

Total FHA/VA

government-guaranteed loans

728

742

Conventional residential mortgage loans:

Accrual Status:

Performing

37,150

80,115

48,955

30,517

28,459

208,118

433,314

421,347

Non-Performing

259

7,179

7,438

7,301

Total conventional residential mortgage loans

37,150

80,115

48,955

30,517

28,718

215,297

440,752

428,648

Total:

Accrual Status:

Performing

37,150

80,115

48,955

30,517

28,459

208,846

434,042

422,089

Non-Performing

259

7,179

7,438

7,301

Total residential mortgage loans in Florida region

37,150

80,115

48,955

30,517

28,718

216,025

441,480

429,390

Charge-offs on residential mortgage loans

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

As of June 30,

2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

118

691

689

782

1,117

101,488

104,885

118,158

Non-Performing

Total FHA/VA

government-guaranteed loans

118

691

689

782

1,117

101,488

104,885

118,158

Conventional residential mortgage loans:

Accrual Status:

Performing

98,303

250,354

121,988

61,336

74,258

2,049,414

2,655,653

2,686,360

Non-Performing

430

32,787

33,252

42,772

Total conventional residential mortgage loans

98,303

250,354

122,023

61,336

74,688

2,082,201

2,688,905

2,729,132

Total:

Accrual Status:

Performing

98,421

251,045

122,677

62,118

75,375

2,150,902

2,760,538

2,804,518

Non-Performing

430

32,787

33,252

42,772

Total residential mortgage loans

98,421

251,045

122,712

62,118

75,805

2,183,689

2,793,790

2,847,290

Charge-offs on residential mortgage loans

2,126

2,129

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The

following

tables present

the

amortized

cost

consumer

loans

portfolio

classes

and

by origination

year

based on

accrual

status as of

June 30, 2023,

the gross charge

-offs for

the six-month period

ended June 30,

2023 by portfolio

classes and by

origination

year, and the amortized cost of consumer

loans by portfolio classes based on accrual status as of December 31, 2022:

As of June 30,

2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Region:

Auto loans:

Accrual Status:

Performing

326,746

604,040

445,754

214,692

167,480

95,343

1,854,055

1,783,782

Non-Performing

199

2,234

2,530

1,341

2,702

2,255

11,261

10,596

Total auto loans

326,945

606,274

448,284

216,033

170,182

97,598

1,865,316

1,794,378

Charge-offs on auto loans

174

3,355

2,287

886

1,205

745

8,652

Finance leases:

Accrual Status:

Performing

159,308

270,541

172,697

76,249

66,859

42,574

788,228

716,585

Non-Performing

619

490

525

380

469

2,483

1,645

Total finance leases

159,308

271,160

173,187

76,774

67,239

43,043

790,711

718,230

Charge-offs on finance leases

656

485

228

341

428

2,149

Personal loans:

Accrual Status:

Performing

88,877

148,554

43,113

22,164

39,809

23,410

365,927

351,664

Non-Performing

713

222

220

122

1,353

1,248

Total personal loans

88,885

149,267

43,335

22,232

40,029

23,532

367,280

352,912

Charge-offs on personal loans

3,414

1,435

662

1,180

834

7,549

Credit cards:

Accrual Status:

Performing

317,456

311,731

Non-Performing

Total credit cards

317,456

311,731

Charge-offs on credit cards

8,447

Other consumer loans:

Accrual Status:

Performing

49,470

52,078

14,386

7,261

8,060

5,348

8,932

145,535

139,116

Non-Performing

527

192

201

1,156

1,122

Total other consumer loans

49,510

52,605

14,578

7,311

8,125

5,549

9,013

146,691

140,238

Charge-offs on other consumer loans

3,530

1,262

305

600

235

221

6,242

Total:

Performing

624,401

1,075,213

675,950

320,366

282,208

166,675

326,388

3,471,201

3,302,878

Non-Performing

247

4,093

3,434

1,984

3,367

3,047

16,253

14,611

Total consumer loans in Puerto Rico and Virgin

Islands region

624,648

1,079,306

679,384

322,350

285,575

169,722

326,469

3,487,454

3,317,489

Charge-offs on total consumer loans

298

10,955

5,469

2,081

3,326

2,242

8,668

33,039

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

As of June 30,

2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

Auto loans:

Accrual Status:

Performing

220

1,873

2,093

3,617

Non-Performing

Total auto loans

220

1,923

2,143

3,693

Charge-offs on auto loans

198

221

Finance leases:

Accrual Status:

Performing

Non-Performing

Total finance leases

Charge-offs on finance leases

Personal loans:

Accrual Status:

Performing

244

319

334

Non-Performing

Total personal loans

244

319

334

Charge-offs on personal loans

Credit cards:

Accrual Status:

Performing

Non-Performing

Total credit cards

Charge-offs on credit cards

Other consumer loans:

Accrual Status:

Performing

227

455

2,389

2,163

5,282

5,833

Non-Performing

119

Total other consumer loans

227

455

2,410

2,201

5,341

5,952

Charge-offs on other consumer loans

Total:

Performing

244

298

459

220

4,262

2,163

7,694

9,784

Non-Performing

109

195

Total consumer loans in Florida region

244

298

459

220

4,333

2,201

7,803

9,979

Charge-offs on total consumer loans

198

221

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

As of June 30,

2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

Auto loans:

Accrual Status:

Performing

326,746

604,040

445,754

214,692

167,700

97,216

1,856,148

1,787,399

Non-Performing

199

2,234

2,530

1,341

2,702

2,305

11,311

10,672

Total auto loans

326,945

606,274

448,284

216,033

170,402

99,521

1,867,459

1,798,071

Charge-offs on auto loans

174

3,355

2,287

886

1,228

943

8,873

Finance leases:

Accrual Status:

Performing

159,308

270,541

172,697

76,249

66,859

42,574

788,228

716,585

Non-Performing

619

490

525

380

469

2,483

1,645

Total finance leases

159,308

271,160

173,187

76,774

67,239

43,043

790,711

718,230

Charge-offs on finance leases

656

485

228

341

428

2,149

Personal loans:

Accrual Status:

Performing

89,121

148,554

43,184

22,168

39,809

23,410

366,246

351,998

Non-Performing

713

222

220

122

1,353

1,248

Total personal loans

89,129

149,267

43,406

22,236

40,029

23,532

367,599

353,246

Charge-offs on personal loans

3,414

1,435

662

1,180

834

7,549

Credit cards:

Accrual Status:

Performing

317,456

311,731

Non-Performing

Total credit cards

317,456

311,731

Charge-offs on credit cards

8,447

Other consumer loans:

Accrual Status:

Performing

49,470

52,126

14,613

7,716

8,060

7,737

11,095

150,817

144,949

Non-Performing

527

192

222

119

1,215

1,241

Total other consumer loans

49,510

52,653

14,805

7,766

8,125

7,959

11,214

152,032

146,190

Charge-offs on other consumer loans

3,530

1,262

305

600

235

221

6,242

Total:

Performing

624,645

1,075,261

676,248

320,825

282,428

170,937

328,551

3,478,895

3,312,662

Non-Performing

247

4,093

3,434

1,984

3,367

3,118

119

16,362

14,806

Total consumer loans

624,892

1,079,354

679,682

322,809

285,795

174,055

328,670

3,495,257

3,327,468

Charge-offs on total consumer loans

298

10,955

5,469

2,081

3,349

2,440

8,668

33,260

(1)

Excludes accrued interest receivable.

As of June 30, 2023 and December 31, 2022, the balance of revolving loans

converted to term loans was

t material.

Accrued

interest

receivable

loans

totaled

52.8

million

June

30,

2023

53.1

million

December

31,

2022),

was

reported as

part of accrued

interest receivable on

loans and investment

securities in the

consolidated statements

of financial

condition

and is excluded from the estimate of credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

determining the ACL as of June 30, 2023 and December 31, 2022

As of June 30, 2023

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

31,199

2,026

31,199

2,026

Commercial loans:

Construction loans

956

Commercial mortgage loans

6,590

1,016

52,447

59,037

1,016

C&I loans

2,563

418

10,601

13,164

418

Consumer loans:

Personal loans

Other consumer loans

173

40,525

3,477

64,004

104,529

3,477

As of December 31, 2022

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

36,206

2,571

36,206

2,571

Commercial loans:

Construction loans

956

Commercial mortgage loans

2,466

897

62,453

64,919

897

C&I loans

1,513

322

17,590

19,103

322

Consumer loans:

Personal loans

120

Other consumer loans

207

40,448

3,820

81,063

121,511

3,820

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

June 30,

2023 was

%, compared

% as

of December

31, 2022,

which was

not considered a significant change in the extent to which collateral secured these loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Purchases and Sales of Loans

the

ordinary

course

business,

the

Corporation

enters

into

securitization

transactions

and

whole

loan

sales

with

GNMA

and

GSEs, such

as FNMA

and FHLMC.

During the

first six

months of

2023, loans

pooled into

GNMA MBS

amounted to

approximately

66.4

million, compared to

79.7

million during the

first six months

of 2022, for

which the Corporation

recognized a net

gain on sale

1.4

million

and

2.3

million,

respectively.

Also, during

the

first

six

months

of 2023,

the

Corporation

sold

approximately

22.8

million of performing residential mortgage loans to FNMA, for

which the Corporation recognized a net gain on sale of $

0.6

million. In

addition,

during

the

first

six

months

2022,

the

Corporation

sold

approximately

75.2

million

and

3.2

million

performing

residential

mortgage

loans

FNMA

and

FHLMC,

respectively,

for

which

the

Corporation

recognized

net

gain

sale

3.3

million

and

0.1

million,

respectively.

The

Corporation’s

continuing

involvement

with

the

loans

that

sells

consists

primarily

servicing

the

loans.

addition,

the

Corporation

agrees

repurchase

loans

it breaches

any

the

representations

and

warranties

included

in the

sale agreement.

These

representations

and warranties

are

consistent with

the

GSEs’

selling

and

servicing

guidelines

(i.e., ensuring that the mortgage was properly underwritten according

to established guidelines).

For loans

pooled into

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or

after January 1,

2003 when certain

delinquency criteria are

met. This option

gives the Corporation

the unilateral ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

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

June 30,

2023 and

December 31,

2022, rebooked

GNMA delinquent

loans that

were included in the residential mortgage loan portfolio amounted to $

6.5

million and $

10.4

million, respectively.

During the first

six months of 2023

and 2022, the Corporation

repurchased, pursuant to

the aforementioned repurchase

option, $

1.9

million

and

6.2

million,

respectively,

loans

previously

pooled

into

GNMA

MBS.

The

principal

balance

these

loans

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

outstanding

GNMA

pools

and

remain

seller

and

servicer

good

standing

with

GNMA.

Historically, losses

on these repurchases of

GNMA delinquent loans have

been immaterial and no provision has

been made at the time

of sale.

Loan sales to FNMA and FHLMC are without recourse in relation

to the future performance of the loans.

The Corporation’s risk of

loss

with

respect

these

loans

also

minimal

these

repurchased

loans

are

generally

performing

loans

with

documentation

deficiencies.

During

the

first

six

months

2023

and

2022,

the

Corporation

purchased

C&I

loan

participations

the

Florida

region

totaling

28.0

million and $

76.4

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Loan Portfolio Concentration

The Corporation’s

primary

lending area

is Puerto

Rico. The

Corporation’s

banking subsidiary,

FirstBank, also

lends in

the USVI

and BVI markets

and in the

United States (principally

in the state of

Florida). Of the

total gross loans

held for investment

portfolio of

11.7

billion as

of June

30, 2023,

credit risk

concentration

was approximately

% in

Puerto Rico,

% in

the U.S.,

and

% in

the

USVI and BVI.

June

30,

2023,

the

Corporation

had

174.9

million

outstanding

loans

extended

the

Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

169.8

million

December

31,

2022.

June

30,

2023,

approximately

105.2

million

consisted

loans

extended

municipalities

Puerto

Rico

that

are

general

obligations

supported

assigned

property

tax

revenues,

and $

28.1

million

loans which

are supported

by one

specific sources

of municipal

revenues. The

vast

majority

revenues

of the

municipalities

included

the

Corporation’s

loan

portfolio

are

independent

budgetary

subsidies

provided

the

Puerto

Rico

central

government.

These

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required

satisfy

the

payment

all

their

respective

general

obligation

bonds

and

notes.

addition

loans

extended

to municipalities,

the Corporation’s

exposure

to the

Puerto

Rico government

as of

June 30,

2023 included

9.5

million

loans granted

to an affiliate

of the

Puerto

Rico Electric

Power Authority

(“PREPA”)

and $

32.1

million in loans

to agencies or

public

corporations of the Puerto Rico government.

In addition, as of

June 30, 2023, the Corporation

had $

81.1

million in exposure to

residential mortgage loans that

are guaranteed by

the PRHFA,

a government

instrumentality that

has been designated

as a covered

entity under PROMESA,

compared to

84.7

million

December

31,

2022.

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

to USVI government

entities. As

of June

30, 2023,

the Corporation

had

78.9

million in

loans to

USVI government

public corporations,

compared to

38.0

million as

of December

31, 2022.

As of

June 30,

2023, all

loans

were currently performing and up to date on principal and interest payments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Loss Mitigation Program for Borrowers Experiencing

Financial Difficulty

Effective January 1, 2023, the Corporation

adopted ASU 2022-02. For additional information on the adoption,

see Note 1 – Basis of

Presentation and Significant Accounting Policies.

The Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon the nature

of a borrower’s financial

condition, restructurings or

loan modifications through

this program are provided,

as well as

other restructurings of

individual C&I, commercial

mortgage, construction, and

residential mortgage

loans. The Corporation

may also

modify contractual terms to comply with regulations regarding the treatment

of certain bankruptcy filings and discharge situations.

The

loan

modifications

granted

borrowers

experiencing

financial

difficulty

that

are

associated

with

payment

delays

typically

include the following:

Forbearance plans –

Payments of either interest

and/or principal are

deferred for a pre-established

period of time, generally

not

exceeding

six

months

any

given

year.

The

deferred

interest

and/or

principal

repaid

either

lump

sum

payment

maturity date or by extending the loan’s

maturity date by the number of forbearance months granted.

Payment

plans

–

Borrowers

are

allowed

pay

the

regular

monthly

payment

plus

the

pre-established

delinquent

amounts

during a period generally not exceeding

six months.

At the end of the payment plan, the

borrower is required to resume making

its regularly scheduled loan payments.

Trial modifications

– These types of loan

modifications are granted for

residential mortgage loans. Borrower

continue making

reduced monthly payments during

the trial period, which is

generally of up to six

months. The reduced payments

that are made

by the

borrower during

the trial

period will

result in

a payment

delay with

respect to

the original

contractual terms

of the

loan

since

the

loan

has

not

yet

been

contractually

modified.

After

successful

completion

the

trial

period,

the

mortgage

loan

contractually modified.

Modifications

the

form

reduction

interest

rate,

term

extension,

other-than-insignificant

payment

delay,

any

combination

these

types

loan

modifications

that

have

occurred

the

current

reporting

period

for

borrower

experiencing

financial difficulty are disclosed in the tables below.

The

below

disclosures

relate

loan

modifications

granted

borrowers

experiencing

financial

difficulty

which

there

was

change

the

timing

and/or

amount

contractual

cash

flows

the

form

any

the

aforementioned

types

modifications,

including

restructurings

that

resulted

more-than-insignificant

payment

delay.

These

disclosures

exclude

1.6

million

and

2.5

million in restructured residential

mortgage loans that are

government-guaranteed (e.g.,

FHA/VA

loans) and were modified

during the

quarter and six-month period ended June 30, 2023, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The following tables present the amortized cost basis as of June 30,

2023 of loans modified to borrowers experiencing financial

difficulty during the quarter and six-month period ended

June 30,

2023, by portfolio classes and type of modification granted, and

the percentage of these modified loans relative to the total period-end amortized

cost basis of receivables in the portfolio class:

Quarter Ended June 30,

2023

Payment Delay Only

Forbearance

Payment

Plan

Trial

Modification

Interest

Rate

Reduction

Term

Extension

Combination of

Interest Rate

Reduction and

Term Extension

Forgiveness

of principal

and/or

interest

Other

Total

Percentage of

Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

210

283

0.01%

Construction loans

Commercial mortgage loans

30,170

1.30%

C&I loans

187

0.01%

Consumer loans:

Auto loans

678

(1)

829

0.04%

Personal loans

112

0.03%

Credit cards

486

(2)

486

0.15%

Other consumer loans

146

(1)

196

0.13%

Total modifications

210

486

529

30,350

688

32,263

Six-Month Period Ended June 30,

2023

Payment Delay Only

Forbearance

Payment

Plan

Trial

Modification

Interest

Rate

Reduction

Term

Extension

Combination of

Interest Rate

Reduction and

Term Extension

Forgiveness

of principal

and/or

interest

Other

Total

Percentage of

Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

542

503

1,139

0.04%

Construction loans

Commercial mortgage loans

30,170

1.30%

C&I loans

187

0.01%

Consumer loans:

Auto loans

167

103

1,155

(1)

1,425

0.08%

Personal loans

151

0.04%

Credit cards

732

(2)

732

0.23%

Other consumer loans

273

(1)

404

0.27%

Total modifications

542

732

1,198

30,549

1,187

34,208

(1)

Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.

(2)

Modification consists of reduction in interest rate and revocation of revolving line privileges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The

following

tables

present

portfolio

classes

the

financial

effects

the

modifications

granted

borrowers

experiencing

financial difficulty,

other than those

associated to payment

delay,

during the

quarter and six-month

period ended June

30, 2023.

The

financial effects

of the modifications

associated to

payment delay

were discussed

above, and

as such,

were excluded

from the

tables

below:

Quarter Ended June 30,

2023

Combination of Interest Rate Reduction

and Term Extension

Weighted-Average

Interest Rate

Reduction (%)

Weighted-Average

Term Extension (in

months)

Weighted-Average

Interest Rate

Reduction (%)

Weighted-Average

Term Extension (in

months)

Forgiveness of

Principal and/or

Interest Amount

(In thousands)

Conventional residential mortgage loans

239

Construction loans

Commercial mortgage loans

0.25

C&I loans

Consumer loans:

Auto loans

3.96

Personal loans

5.41

Credit cards

16.26

Other consumer loans

1.87

Six-Month Period Ended June 30,

2023

Combination of Interest Rate Reduction

and Term Extension

Weighted-Average

Interest Rate

Reduction (%)

Weighted-Average

Term Extension (in

months)

Weighted-Average

Interest Rate

Reduction (%)

Weighted-Average

Term Extension (in

months)

Forgiveness of

Principal and/or

Interest Amount

(In thousands)

Conventional residential mortgage loans

118

2.40

157

Construction loans

Commercial mortgage loans

0.25

C&I loans

Consumer loans:

Auto loans

3.64

Personal loans

5.11

Credit cards

16.15

Other consumer loans

1.92

The following table presents by portfolio classes the performance of loans modified

during the six-month period ended June 30,

2023 that were granted to borrowers experiencing financial difficulty:

Six-Month Period Ended June 30,

2023

30-59

60-89

90+

Total

Delinquency

Current

Total

(In thousands)

Conventional residential mortgage loans

1,139

Construction loans

Commercial mortgage loans

30,170

C&I loans

187

Consumer loans:

Auto loans

1,415

1,425

Personal loans

151

Credit cards

652

732

Other consumer loans

382

404

Total modifications

112

34,096

34,208

There

were

loans

modified

borrowers

experiencing

financial

difficulty

after

January

2023,

which

had

payment

default (failure by

the borrower to make

payments of either principal,

interest, or both for

a period of 90

days or more) during

the six-

month period ended June 30, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 4 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

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

segment for the indicated periods:

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Quarter Ended June 30, 2023

(In thousands)

ACL:

Beginning balance

64,403

3,231

36,460

31,235

130,238

265,567

Provision for credit losses - (benefit) expense

(3,500)

1,202

5,999

2,997

14,072

20,770

Charge-offs

(1,146)

(38)

(88)

(6,350)

(16,462)

(24,084)

Recoveries

757

409

132

3,451

4,805

Ending balance

60,514

4,804

42,427

28,014

131,299

267,058

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Six-Month Period Ended June 30,

2023

(In thousands)

ACL:

Beginning balance

62,760

2,308

35,064

32,906

127,426

260,464

Impact of adoption of ASU 2022-02

2,056

2,116

Provision for credit losses - (benefit) expense

(3,427)

2,062

7,245

1,347

29,799

37,026

Charge-offs

(2,129)

(38)

(106)

(6,468)

(33,260)

(42,001)

Recoveries

1,254

472

224

222

7,281

9,453

Ending balance

60,514

4,804

42,427

28,014

131,299

267,058

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Quarter Ended June 30,

2022

(In thousands)

ACL:

Beginning balance

68,820

1,842

30,138

36,784

107,863

245,447

Provision for credit losses - (benefit) expense

(2,797)

151

1,265

(1,102)

15,148

12,665

Charge-offs

(2,079)

(16)

(2)

(68)

(10,427)

(12,592)

Recoveries

1,287

1,218

589

3,495

6,632

Ending balance

65,231

2,020

32,619

36,203

116,079

252,152

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Six-Month Period Ended June 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

(7,668)

(2,063)

(21,375)

653

26,129

(4,324)

Charge-offs

(4,607)

(60)

(39)

(358)

(20,243)

(25,307)

Recoveries

2,669

1,262

1,624

7,103

12,753

Ending balance

65,231

2,020

32,619

36,203

116,079

252,152

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

Nature

Business

and

Summary

Significant Accounting

Policies, to

the audited

consolidated financial

statements included

in the

2022 Annual

Report on

Form 10-K,

for each portfolio segment.

The Corporation applies

probability weights to

the baseline and

alternative downside economic

scenarios to estimate

the ACL with

the baseline scenario carrying

the highest weight. During

the second quarter of 2023,

the Corporation applied the

baseline scenario for

the commercial

mortgage and

construction loan

portfolios as

deterioration in

the CRE

price index

in these

portfolios is

expected at

lower extent

than projected

in the

alternative downside

scenario, particularly

in the Puerto

Rico region.

The economic

scenarios used

the

ACL

determination

contained

assumptions

economic

uncertainties

associated

with

geopolitical

instability,

the

commercial

real estate

price index

(“CRE price

index”), high

inflation levels,

and the

expected path

of interest

rate increases

by the

FED.

As of June

30, 2023, the

ACL for loans

and finance

leases was $

267.1

million, an increase

of $

6.6

million, from $

260.5

million as

of December 31, 2022. The ACL for

commercial and construction loans increased

by $

5.0

million, mainly due to a deterioration

in the

forecasted CRE price

index to account for

an increased uncertainty

in the CRE market

at a national level

that could potentially impact

the

markets

served

the

Corporation

coupled

with

the

growth

the

commercial

and

construction

loan

portfolios.

The

ACL

for

consumer loans increased by $

3.9

million, primarily reflecting the effect

of the increase in the size of

the consumer loan portfolios and

historical

charge-off

levels,

partially

offset

updated

macroeconomic

variables,

such

the

unemployment

rate,

which

are

now

forecasted to deteriorate at a slower pace than previously

expected. The ACL for residential mortgage loans

decreased by $

2.3

million,

mainly

driven

favorable

economic

outlook

the

projection

certain

forecasted

macroeconomic

variables,

such

the

Regional Home

Price Index,

partially offset

by a

2.1

million cumulative

increase in

the ACL,

due to

the adoption

of ASU 2022-02,

for which

the Corporation

elected to

discontinue the

use of

a discounted

cash flow

methodology for

restructured accruing

loans. See

Note 1

– Basis of Presentation

and Significant Accounting

Policies for additional

information related to

the adoption of ASU

2022-02

during 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The tables below

present the ACL

related to loans

and finance leases

and the carrying

values of loans

by portfolio segment

as of

June 30,

2023 and December 31, 2022:

As of June 30,

2023

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

Commercial and

Industrial Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,793,790

163,998

2,320,069

2,946,201

3,495,257

11,719,315

Allowance for credit losses

60,514

4,804

42,427

28,014

131,299

267,058

Allowance for credit losses to

amortized cost

2.17

2.93

1.83

0.95

3.76

2.28

As of December 31, 2022

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

Commercial and

Industrial Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,847,290

132,953

2,358,851

2,886,263

3,327,468

11,552,825

Allowance for credit losses

62,760

2,308

35,064

32,906

127,426

260,464

Allowance for credit losses to

amortized cost

2.20

1.74

1.49

1.14

3.83

2.25

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

which

the

Corporation

exposed

credit

risk

via

contractual

obligation

extend

credit,

such

unfunded

loan

commitments

and

standby

letters

credit

for

commercial and construction

loans, unless the

obligation is unconditionally

cancellable by the Corporation.

See Note 22 –

Regulatory

Matters,

Commitments,

and

Contingencies

for

information

off-balance

sheet

exposures

June

30,

2023

and

December

31,

2022.

The

Corporation

estimates

the

ACL

for

these

off-balance

sheet

exposures

following

the

methodology

described

Note

–

Nature of Business and Summary of Accounting Policies,

to the audited consolidated financial statements included in the

2022 Annual

Report

Form

10-K.

June

30,

2023,

the

ACL

for

off-balance

sheet

credit

exposures

increased

4.9

million,

from

4.3

million as of December 31,

2022, driven by the deterioration

in the forecasted CRE price

index and its effect

in construction unfunded

loan commitments.

The following

table presents

the activity

in the

ACL for

unfunded loan

commitments and

standby letters

of credit

for the

quarters

and six-month periods ended June 30, 2023 and 2022:

Quarter Ended

Six-Month Period Ended

June 30,

2023

2022

2023

2022

(In thousands)

Beginning Balance

4,168

1,359

4,273

1,537

Provision for credit losses - expense

721

812

616

634

Ending balance

4,889

2,171

4,889

2,171

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 5

–

OTHER REAL ESTATE

OWNED

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

June 30, 2023

December 31, 2022

(In thousands)

OREO balances, carrying value:

Residential

(1)

23,621

24,025

Construction

1,892

1,764

Commercial

6,058

5,852

Total

31,571

31,641

(1)

Excludes $

20.9

million and $

23.5

million as

of June 30,

2023 and December

31, 2022, respectively,

of foreclosures that

met 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.

See Note

18 -

Fair Value

for information

on write-downs

recorded on

OREO properties

during the

quarters and

six-month periods

ended June 30, 2023 and 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

Goodwill

as of

each

June 30,

2023

and

December

31,

2022

amounted

38.6

million.

The Corporation’s policy is to assess

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

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

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

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

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

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

than-not that the fair value of the reporting units exceeded their carrying amount. As of December 31, 2022, 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 no 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, no impairment charges for goodwill were recorded

during the first six months of 2023.

There were

changes in the carrying amount of goodwill during the quarter and six-month

period ended June 30, 2022.

Other Intangible Assets

The

following

table

presents

the

gross

amount

and

accumulated

amortization

the

Corporation’s

intangible

assets

subject

amortization as of the indicated dates:

As of

June 30,

December 31,

2023

2022

(Dollars in thousands)

Core deposit intangible:

Gross amount

87,544

Accumulated amortization

(70,469)

(66,644)

Net carrying amount

17,075

20,900

Remaining amortization period (in years)

6.5

7.0

Purchased credit card relationship intangible:

Gross amount

3,800

Accumulated amortization

(3,783)

(3,595)

Net carrying amount

205

Remaining amortization period (in years)

0.2

0.7

Insurance customer relationship intangible:

Gross amount

1,067

Accumulated amortization

(1,054)

Net carrying amount

Remaining amortization period (in years)

0.1

During

the

quarter

and

six-month

period

ended

June

30,

2023,

the

Corporation

recognized

2.0

million

and

4.0

million,

respectively,

in amortization

expense

on its

other intangibles

subject to

amortization,

compared to

2.2

million

and $

4.5

million for

the same periods in 2022, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The Corporation amortizes core deposit intangibles and customer relationship intangible 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 the customer relationship intangible. As mentioned above, the Corporation analyzes core deposit intangibles and the customer

relationship intangible annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may

suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that would

indicate a possible impairment to the core deposit intangibles or the customer relationship intangible as of June 30, 2023.

The estimated

aggregate annual

amortization expense

related to the

intangible assets

subject to amortization

for future periods

was

as follows as of June 30, 2023:

(In thousands)

Remaining 2023

3,710

2024

6,416

2025

3,509

2026

872

2027

872

2028 and after

1,713

NOTE 7 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIEs”) AND SERVICING

ASSETS

The Corporation

transfers residential

mortgage loans

in sale

or securitization

transactions in

which it

has continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

sales

required

applicable accounting guidance.

When

evaluating

the

need

consolidate

counterparties

which

the

Corporation

has

transferred

assets,

with

which

the

Corporation has

entered into

other transactions,

the Corporation

first determines

if the

counterparty is

an entity

for which

a variable

interest

exists.

scope

exception

applicable

and

variable

interest

exists,

the

Corporation

then

evaluates

whether

the

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

or not.

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

some level of continuing involvement:

Trust-Preferred

Securities (“TRuPs”)

In April 2004,

FBP Statutory Trust

I, a financing

trust that is wholly

owned by the

Corporation, sold to

institutional investors $

100

million of its variable

-rate TRuPs. FBP Statutory

Trust I used

the proceeds of the

issuance, together with the

proceeds of the purchase

the

Corporation

3.1

million

FBP

Statutory

Trust

variable-rate

common

securities, to

purchase

103.1

million

aggregate

principal

amount

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

September

2004,

FBP

Statutory

Trust

II,

financing

trust that

is wholly

owned by

the Corporation,

sold to

institutional investors

125

million of

its variable-rate

TRuPs. FBP

Statutory Trust

II used

the proceeds of

the issuance,

together with

the proceeds of

the purchase by

the Corporation

of $

3.9

million of

FBP Statutory

Trust

II variable-rate

common securities,

to purchase

128.9

million aggregate

principal amount

of the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

The

debentures,

net

issuance

costs,

are

presented

the

Corporation’s

consolidated statements

of financial condition

as other long-term borrowings.

Upon the discontinuance of

LIBOR after June 30, 2023,

and

following

the

provisions

the

LIBOR

Act

and

Regulation

ZZ,

the

interest

rate

the

TRuPs

will

transition

during

the

third

quarter of

2023 from

3-month LIBOR

plus a

spread to

3-month CME

Term

SOFR plus

a tenor

spread adjustment

0.26161

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).

During the second quarter of 2023, the Corporation

completed the repurchase of $

21.4

million of TRuPs of FBP Statutory Trust I as

part

privately-negotiated

transaction

with

investors,

resulting

commensurate

reduction

the

floating

rate

junior

subordinated

debentures.

The

purchase

price

paid

the

Corporation

equated

92.5

the

21.4

million

par

value.

The

7.5

discount resulted

in a

gain of

approximately

1.6

million, which

is reflected

in the

consolidated statements

of income

as a

“Gain on

early

extinguishment

debt.”

June

30,

2023

and

December

31,

2022,

these

Junior

Subordinated

Deferrable

Debentures

amounted to $

161.7

million and $

183.8

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

time

during

the

term

the

subordinated

debentures

for

twenty

consecutive

quarterly

periods.

June

30,

2023,

the

Corporation was current on all interest payments due on its subordinated

debt.

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

series of

statutory

trusts

effect

the

securitization

mortgage

loans

and

the

sale

trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing for

a fee, which

is senior to

the obligations to

pay private label

MBS holders. The

seller then entered

into a sales

agreement

through

which

it sold

and

issued

the

private

label

MBS in

favor

the

Corporation’s

banking

subsidiary,

FirstBank.

Currently,

the

Bank is

the sole

owner of

these private

label MBS;

the servicing

of the

underlying

residential mortgages

that generate

the principal

and

interest

cash

flows

performed

another

third

party,

which

receives

servicing

fee.

mentioned

above,

upon

the

discontinuance of LIBOR

after June 30,

2023, and following

the provisions of

the LIBOR Act and

Regulation ZZ, the

interest rate on

these private

label MBS

will transition

during

the third

quarter of

2023 from

3-month LIBOR

plus a

spread to

3-month CME

Term

SOFR plus

a tenor

spread adjustment

0.26161

% and

the original

spread limited

to the

weighted-average coupon

of the

underlying

collateral. The

principal payments

from the

underlying loans

are remitted

to a paying

agent (servicer),

who then remits

interest to

the

Bank. Interest

income is shared

to a certain

extent with the

FDIC, which has

an interest only

strip (“IO”) tied

to the cash

flows of the

underlying loans

and is entitled

to receive

the excess

of the interest

income less

a servicing

fee over

the variable

rate income

that the

Bank earns on the securities. The FDIC became the owner of

the IO upon its intervention of the seller,

a failed financial institution. No

recourse agreement

exists, and

the Bank,

as the

sole holder

of the

securities, absorbs

all risks

from losses

on non-accruing

loans and

repossessed collateral. As of June

30, 2023, the amortized cost and fair

value of these private label MBS

amounted to $

7.5

million and

5.2

million,

respectively,

with

weighted

average

yield

7.6

which

is included

as part

the

Corporation’s

available-for-sale

debt securities portfolio. As described in Note 2 – Debt

Securities, the ACL on these private label MBS amounted to

0.1

million as of

June 30, 2023.

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.

As of

June

30,

2023,

the Corporation

serviced

loans

securitized

through

GNMA

with

principal

balance

2.1

billion.

Also,

certain

conventional

conforming

loans

are

sold

FNMA

FHLMC

with

servicing

retained.

The

Corporation

recognizes

separate

assets

the

rights

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 June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Balance at beginning of period

28,431

30,753

29,037

30,986

Capitalization of servicing assets

706

828

1,238

1,958

Amortization

(1,102)

(1,273)

(2,230)

(2,603)

Recoveries

Other

(1)

(2)

(40)

(16)

(128)

Balance at end of period

28,034

30,277

28,034

30,277

(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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Balance at beginning of period

Recoveries

(1)

(9)

(5)

(64)

Balance at end of period

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 June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Servicing fees

2,660

2,821

5,378

5,640

Late charges and prepayment penalties

211

219

410

413

Adjustment for loans repurchased

(2)

(40)

(16)

(128)

Servicing income, gross

2,869

3,000

5,772

5,925

Amortization and impairment of servicing assets

(1,101)

(1,264)

(2,225)

(2,539)

Servicing income, net

1,768

1,736

3,547

3,386

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

Six-Month Period Ended June 30,

2023

Constant prepayment rate:

Government-guaranteed mortgage loans

6.7

11.6

4.8

Conventional conforming mortgage loans

7.4

16.0

3.8

Conventional non-conforming mortgage loans

5.9

9.0

2.1

Discount rate:

Government-guaranteed mortgage loans

11.5

Conventional conforming mortgage loans

9.5

Conventional non-conforming mortgage loans

12.9

14.0

11.5

Six-Month Period Ended June 30,

2022

Constant prepayment rate:

Government-guaranteed mortgage loans

6.7

18.3

4.8

Conventional conforming mortgage loans

6.6

18.4

3.4

Conventional non-conforming mortgage loans

6.3

21.9

4.5

Discount rate:

Government-guaranteed mortgage loans

11.9

12.0

11.5

Conventional conforming mortgage loans

9.9

10.0

9.5

Conventional non-conforming mortgage loans

12.4

14.5

11.5

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The weighted

averages of the

key economic

assumptions that the

Corporation used

in its valuation

model and the

sensitivity of the

current

fair

value

immediate

and

adverse

changes

those

assumptions

for

mortgage

loans

June

30,

2023

and

December 31, 2022 were as follows:

June 30,

December 31,

2023

2022

(In thousands)

Carrying amount of servicing assets

28,034

29,037

Fair value

44,420

44,710

Weighted-average

expected life (in years)

7.79

7.80

Constant prepayment rate (weighted-average annual

rate)

6.28

6.40

Decrease in fair value due to 10% adverse change

1,025

1,048

Decrease in fair value due to 20% adverse change

2,008

2,054

Discount rate (weighted-average annual rate)

10.71

10.69

Decrease in fair value due to 10% adverse change

1,902

1,925

Decrease in fair value due to 20% adverse change

3,660

3,704

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

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

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

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

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 8 – DEPOSITS

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

June 30, 2023

December 31, 2022

(In thousands)

Type of account and interest rate:

Non-interest-bearing deposit accounts

5,874,261

6,112,884

Interest-bearing saving accounts

3,642,728

3,902,888

Interest-bearing checking accounts

4,258,871

3,770,993

Certificates of deposit (“CDs”)

2,680,250

2,250,876

Brokered CDs

363,582

105,826

Total

16,819,692

16,143,467

The following table presents the contractual maturities of CDs, including brokered CDs, as of June 30,

2023:

Total

(In thousands)

Three months or less

685,606

Over three months to six months

511,428

Over six months to one year

752,768

Over one year to two years

783,288

Over two years to three years

139,807

Over three years to four years

41,543

Over four years to five years

122,471

Over five years

6,921

Total

3,043,832

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

indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Interest expense on deposits

41,553

7,757

71,477

15,574

Accretion of premiums from

acquisitions

(33)

(92)

(116)

(292)

Amortization of broker placement fees

128

Total

41,604

7,694

71,489

15,346

Total

U.S. time

deposits with

balances

of more

than $250,000

amounted

to $

1.3

billion and

1.0

billion

as of

June 30,

2023

and

December 31,

2022, 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 June

30, 2023

and December

31, 2022,

unamortized broker

placement fees

amounted to

0.4

million and

0.3

million, respectively,

which are

amortized over

the contractual

maturity of

the brokered

CDs under

the interest

method.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO

REPURCHASE (REPURCHASE AGREEMENTS)

Repurchase agreements as of the indicated dates consisted of the following:

June 30, 2023

December 31, 2022

(In thousands)

Short-term Fixed-rate repurchase agreements

(1)

73,934

75,133

(1)

Weighted-average interest rate

5.35

% and

4.55

% as of June 30, 2023 and December 31, 2022, respectively.

Repurchase agreements mature as follows as of the indicated date:

June 30,

2023

(In thousands)

Within one month

23,934

Over one month to three months

50,000

Total

73,934

As of

June 30,

2023 and

December 31,

2022, the

securities underlying

such agreements

were delivered

to the

dealers with

which

the repurchase

agreements were transacted.

In accordance with

the master agreements,

in the

event of

default, repurchase agreements

have a right

of set-off

against the other

party for amounts owed

under the related

agreement and any

other amount or

obligation owed

with respect to any other

agreement or transaction between them.

As of June 30, 2023 and December

31, 2022, repurchase agreements

were fully collateralized and not offset in the consolidated

statements of financial condition.

Repurchase agreements as of June 30, 2023, grouped by counterparty,

were as follows:

Weighted-Average

Counterparty

Amount

Maturity (In Months)

(Dollars in thousands)

JP Morgan Chase

73,934

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 10 – ADVANCES

FROM THE FEDERAL HOME LOAN BANK (“FHLB

”)

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

June 30, 2023

December 31, 2022

(In thousands)

Short-term

Fixed

-rate advances from the FHLB

(1)

475,000

Long-term

Fixed

-rate advances from the FHLB

(2)

500,000

200,000

500,000

675,000

(1)

Weighted-average interest rate of

4.56

% as of December 31, 2022.

(2)

Weighted-average interest rate of

4.45

% and

4.25

% as of June 30,

2023 and December 31, 2022, respectively.

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

June 30, 2023

(In thousands)

Over one to five years

500,000

During

the

six-month

period

ended

June

30,

2023,

the

Corporation

added

300.0

million

long-term

FHLB

advances

average cost of

4.59

%, and repaid its short-term FHLB advances.

NOTE 11 – OTHER LONG-TERM

BORROWINGS

Junior Subordinated Debentures

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

June 30,

December 31,

(In thousands)

2023

2022

Floating rate junior subordinated debentures (FBP Statutory Trust

(1)

(3)

43,143

65,205

Floating rate junior subordinated debentures (FBP Statutory Trust

II)

(2) (3)

118,557

161,700

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

(

8.26

% as of June 30, 2023 and

7.49

% as of

December 31, 2022).

(2)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.50

% over

3-month LIBOR

(

8.01

% as of June 30,

2023 and

7.25

% as of

December 31, 2022).

(3)

See Note 7 - Non-Consolidated Variable

Interest Entities

(“VIEs”) and Servicing Assets, for additional information on the nature

and terms of these debentures, the LIBOR transition of

these contracts, and the Corporation’s repurchase

in the second quarter of 2023 of $

21.4

million in TRuPs associated with FBP Statutory Trust

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 12 – EARNINGS PER COMMON

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

ended June 30,

2023 and 2022 are as follows:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands, except per share information)

Net income attributable to common stockholders

70,655

74,695

141,353

157,295

Weighted-Average

Average common

shares outstanding

178,926

194,405

179,567

196,257

Average potential

dilutive common shares

351

961

686

1,184

Average common

shares outstanding - assuming dilution

179,277

195,366

180,253

197,441

Earnings per common share:

Basic

0.39

0.38

0.79

0.80

Diluted

0.39

0.38

0.78

0.80

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 and

performance

units (if

any

of the

performance

conditions

are

met

as of

the end

the reporting

period),

that

not contain

non-forfeitable

dividend

or dividend

equivalent

rights

using the

treasury stock

method. This

method assumes

that proceeds

equal to

the amount

of compensation

cost attributable

to future

services

used

repurchase

the

open

market

the

average

market

price

for

the

period.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock

outstanding

during

the

period

that

result

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock method

are not included

in the computation

dilutive

earnings

per

since

their

inclusion

would

have an

antidilutive

effect

earnings

per

share.

There

were

antidilutive

shares of common stock during the quarters and six-month periods

ended June 30, 2023 and 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 13 – STOCK-BASED

COMPENSATION

The First Bancorp

Omnibus Incentive

Plan (the “Omnibus

Plan”), which is

effective until

May 24, 2026,

provides for equity-based

and non

equity-based compensation

incentives (the

“awards”). The

Omnibus Plan

authorizes the

issuance of

up to

14,169,807

common

stock, subject

to adjustments

for

stock splits,

reorganizations

and

other

similar events.

As of

June 30,

2023,

there

were

3,174,889

authorized

common

stock

available

for

issuance

under

the

Omnibus

Plan.

The

Board,

based

the

recommendation of

the Compensation

and Benefits

Committee of

the Board,

has the

power and

authority to

determine those

eligible

to receive

awards and

to establish the

terms and conditions

of any

awards, subject to

various limits and

vesting restrictions

that apply

to individual and aggregate awards.

Restricted Stock

Under the

Omnibus Plan,

the Corporation

may grant

restricted stock

to plan

participants, subject

to forfeiture

upon the

occurrence

of certain

events until

the dates

specified in

the participant’s

award agreement.

While the

restricted stock

is subject

to forfeiture

and

does

not

contain

non-forfeitable

dividend

rights,

participants

may

exercise

full

voting

rights

with

respect

the

restricted

stock

granted

them.

The

fair

value

the

restricted

stock

granted

was

based

the

market

price

the

Corporation’s

common

stock on

the date

of the

respective grant.

The shares

of restricted

stocks granted

to employees

are subject

to the

following

vesting period:

fifty percent

(

%) of

those shares

vest on

the two-year

anniversary of

the grant

date and

the remaining

% vest

the three-year

anniversary of

the grant

date. The

shares of

restricted stock

granted to

directors are

generally subject

to vesting

on the

one-year

anniversary

of the

grant

date.

The Corporation

issued

495,891

shares during

the six-month

period ended

June 30,

2023

connection with restricted stock awards, which were reissued from

treasury shares.

The following table summarizes the restricted stock activity under the Omnibus

Plan during the six-month periods ended June 30,

2023 and 2022:

Six-Month Period Ended

June 30,

2023

June 30,

2022

Number of

Weighted-

Number of

Weighted-

shares of

Average

shares of

Average

restricted

Grant Date

restricted

Grant Date

stock

Fair Value

stock

Fair Value

Unvested shares outstanding at beginning of year

938,491

9.14

1,148,775

6.61

Granted

(1)

495,891

11.99

301,440

13.15

Forfeited

(57,491)

11.29

(10,364)

8.82

Vested

(481,536)

5.93

(487,198)

5.72

Unvested shares outstanding at end of period

895,355

12.31

952,653

9.11

(1)

Includes for the six-month period ended June 30, 2023,

3,502

shares of restricted stock awarded to independent directors and

492,389

shares of restricted stock awarded to employees, of

which

33,718

shares were granted to retirement-eligible employees and

thus charged to earnings as of the grant date. Includes

for the six-month period ended June 30, 2022,

3,048

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.

For the quarter and

six month-periods ended June

30, 2023, the Corporation

recognized $

1.4

million and $

3.0

million, respectively,

stock-based

compensation

expense

restricted

stock

awards,

compared

0.9

million

and

1.8

million

for

the

same

periods in 2022, respectively.

As of June 30, 2023,

there was $

6.4

million of total unrecognized

compensation cost related to

unvested

shares of restricted stock that the Corporation expects to recognize over a weighted

average period of

1.9

years.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Performance Units

Under the Omnibus Plan, the Corporation may award

performance units to participants, with each unit representing

the value of one

the

Corporation’s

common

stock.

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

dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.

On March 16, 2023, the Corporation granted 216,876 performance units to executives. Performance units granted on or after March

16, 2023 will vest on the third anniversary of the effective date of the award based on actual achievement of two performance metrics

weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the KBW Nasdaq

Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured based upon the

growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring transactions. The

participant may earn 50% of their target opportunity for threshold-level performance and up to 150% of their target opportunity for

maximum-level performance, based on the achievement of the performance goals during a three-year performance cycle. Amounts

between threshold, target and maximum performance will vest in a proportional amount. Performance units granted prior to March 16,

2023 vest subject only to achievement of a TBVPS goal and the participant may earn only up to 100% of their target opportunity.

The following

table summarizes

the performance

units activity

under the

Omnibus Plan

during

the six-month

periods ended

June

30, 2023 and 2022:

Six-Month Period Ended

June 30,

2023

June 30,

2022

Number

Weighted -

Number

Weighted -

Average

Performance

Grant Date

Performance

Grant Date

Units

Fair Value

Units

Fair Value

Performance units at beginning of year

791,923

7.36

814,899

7.06

Additions

(1)

216,876

12.24

166,669

13.15

Vested

(2)

(474,538)

4.08

(189,645)

11.16

Performance units at end of period

534,261

12.25

791,923

7.36

(1)

Units granted during the six-month periods ended June

30,

2023 are subject to the achievement of the Relative TSR and TBVPS

performance goals during a three-year performance cycle

beginning January 1, 2023 and ending on December 31, 2025.

Units granted during the six-month period ended June 30,

2022 are subject to the achievement of the TBVPS performance

goal during a three-year performance cycle beginning January 1,

2022 and ending on December 31, 2024.

(2)

Units vested during the six-month period ended June 30,

2023 are related to performance units granted in 2020 that met certain pre-established

targets and were settled with shares of

common stock reissued from treasury shares. Units

vested during the six-month period ended June 30,

2022 are related to performance units granted in 2019 that met certain

pre-

established targets and were settled with shares

of common stock reissued from treasury shares.

The fair value of the performance units awarded during the six-month periods ended June 30, 2023 and 2022, that was based on the

TBVPS goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the

grant and assuming attainment of 100% of target opportunity. As of June 30, 2023, there have been no changes in management’s

assessment of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to

compensation expense has been recognized. The fair value of the performance units awarded during the six-month period ended June

30, 2023, that was based on the Relative TSR component, was calculated using a Monte Carlo simulation. Since the Relative TSR

component is considered a market condition, the fair value of the portion of the award based on Relative TSR is not revised

subsequent to grant date based on actual performance.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The following

table summarizes

the valuation

assumptions used

to calculate

the fair

value of

the Relative

TSR component

of the

performance units granted under the Omnibus Plan during the six-month

period ended June 30, 2023:

Six-Month Period Ended

June 30,

2023

Risk-free interest rate

(1)

3.98

Correlation coefficient

77.16

Expected dividend yield

(2)

Expected volatility

(3)

41.37

Expected life (in years)

2.79

(1)

Based on the yield on zero-coupon U.S. Treasury

STRIPS as of the grant date.

(2)

Assumes that dividends are reinvested at each ex-dividend date.

(3)

Calculated based on the historical volatility of the Corporation's

stock price with a look-back period equal to the simulation

term using daily stock prices.

For the

quarter

and

six-month

periods

ended

June 30,

2023 and

2022,

the Corporation

recognized

0.5

million

and

1.0

million,

respectively,

stock-based

compensation

expense

performance

units,

compared

0.5

million

and

0.8

million

for

the

same periods

in 2022,

respectively.

As of

June 30,

2023,

there was

4.1

million

of total

unrecognized

compensation cost

unvested performance units that the Corporation expects to recognize

over a weighted average period of

2.2

years.

Shares withheld

During

the first

six

months

of 2023,

the Corporation

withheld

287,835

shares (first

six

months

2022 –

201,930

shares)

of the

restricted

stock

that vested

during

such period

to 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 14 –

STOCKHOLDERS’

EQUITY

Stock Repurchase Programs

On April

27, 2022,

the Corporation

announced that

its Board

approved a

stock repurchase

program

that provides

authorization

repurchase

350

million

its

outstanding

common

stock,

which

commenced

the

second

quarter

2022.

June

30,

2023, the

Corporation had

remaining authorization

to repurchase

approximately $

million of

common stock.

Furthermore, on

July

24,

2023,

the

Corporation

announced

that

its

Board

Directors

approved

new

stock

repurchase

program,

under

which

the

Corporation may

repurchase up

to $

225

million of

its outstanding

common stock,

which it

expects to

execute through

the end

of the

third quarter

of 2024.

The Corporation

expects to

repurchase approximately

150

million in

common stock

during the

second half

2023,

of which

million

relates to

the remaining

amount of

the aforementioned

350

million

stock repurchase

program

that was

resumed in July 2023.

Repurchases under

the programs

may be

executed through

open market

purchases, accelerated

share repurchases,

and/or privately

negotiated transactions or

plans, including under plans

complying with Rule 10b5-1

under the Exchange Act.

The Corporation’s

stock

repurchase program

are 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

Corporation’s

stock

repurchase

programs

not

obligate

acquire

any

specific

number

and

not

have

expiration

date.

The

stock

repurchase

programs

may

modified, suspended, or terminated at any time at the Corporation’s

discretion. The Parent Company has no operations and depends on

dividends,

distributions

and

other

payments

from

its

subsidiaries

fund

dividend

payments,

stock

repurchases,

and

fund

all

payments on its obligations, including debt obligations.

Common Stock

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

the six-month periods ended June 30,

2023 and

2022:

Total

Number of Shares

Six-Month Period Ended June 30,

2023

2022

Common stock outstanding, beginning balance

182,709,059

201,826,505

Common stock repurchased

(1)(2)

(3,865,375)

(10,680,890)

Common stock reissued under stock-based compensation plan

970,429

491,085

Restricted stock forfeited

(57,491)

(10,364)

Common stock outstanding, ending balances

179,756,622

191,626,336

(1)

For the six-month periods

ended June 30,

2023 includes

3,577,540

shares of common stock

repurchased in the

open market during the

first quarter of 2023

at an average

price of $

13.98

for a

total

purchase

price

of $

million

under

the

350

million

stock

repurchase

program

announced

April

27,

2022.

For the

six-month

period

ended

June

30,

2022

included

7,069,263

shares of common stock repurchased

in the open market at an

average price of $

14.15

per share for a total purchase

price of approximately $

100

million under the $

350

million

stock repurchase

program and

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 a prior publicly-announced $

300

million stock repurchase program which was completed during

the first quarter of 2022.

(2)

For the six-month periods ended June 30,

2023 and 2022 also includes

287,835

and

201,930

shares, respectively, of common

stock surrendered to cover officers’ payroll and

income

taxes.

For the

quarter and

six-month period

ended June

30, 2023,

total cash

dividends declared

on shares

of common

stock amounted

25.3

million

and

50.7

million,

respectively,

compared

23.4

million

and

43.3

million,

respectively,

for

the

same

periods

2022. On

July 24, 2023

, the Corporation

announced that its

Board had declared

a quarterly cash

dividend of $

0.14

per common share

payable

September 8, 2023

shareholders

record

the

business

August 24, 2023

The

Corporation

intends

continue

pay

quarterly

dividends

common

stock.

However,

the

Corporation’s

common

stock

dividends,

including

the

declaration,

timing,

and

amount,

remain

subject

consideration

and

approval

the

Corporation’s

Board

Directors

the

relevant

times.

Preferred Stock

The Corporation

has

50,000,000

authorized shares of

preferred stock with

a par value

of $

1.00

, 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 when authorizing

the

issuance of

that particular

series and

are redeemable

at the Corporation’s

option.

shares of preferred

stock were

outstanding as

June 30, 2023 and December 31, 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Treasury Stock

The following table shows the change in shares of treasury stock for the six-month

periods ended June 30,

2023 and 2022.

Total

Number of Shares

Six-Month Period Ended June 30,

2023

2022

Treasury stock, beginning balance

40,954,057

21,836,611

Common stock repurchased

3,865,375

10,680,890

Common stock reissued under stock-based compensation plan

(970,429)

(491,085)

Restricted stock forfeited

57,491

10,364

Treasury stock, ending balances

43,906,494

32,036,780

FirstBank Statutory Reserve (Legal Surplus)

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

minimum

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

common and preferred

stock. Amounts transferred

to the legal surplus

reserve from retained

earnings are not available

for distribution

to the Corporation without

the prior consent of the

Puerto Rico Commissioner of Financial

Institutions.

The Puerto Rico Banking Law

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

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

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

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

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

FirstBank’s

legal surplus

reserve, included

as part

retained earnings

in the

Corporation’s

consolidated statements

of financial

condition, amounted

to $

168.5

million as

of each

June 30,

2023 and December 31, 2022. There were

transfers to the legal surplus reserve during the first half of 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 15 – ACCUMULATED

OTHER COMPREHENSIVE LOSS

The following table presents the changes in accumulated other comprehensive

loss for the quarters and six-month periods ended

June 30, 2023 and 2022:

Changes in Accumulated Other Comprehensive

Loss by Component

(1)

Quarter ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Unrealized net holding losses on available-for-sale

debt securities:

Beginning balance

(718,744)

(419,224)

(805,972)

(87,390)

Other comprehensive (loss) income

(2)

(54,837)

(175,923)

32,391

(507,757)

Ending balance

(773,581)

(595,147)

(773,581)

(595,147)

Adjustment of pension and postretirement

benefit plans:

Beginning balance

1,194

3,391

1,194

3,391

Other comprehensive (loss) income

Ending balance

1,194

3,391

1,194

3,391

____________________

(1)

All amounts presented are net of tax.

(2)

Net unrealized holding (losses) gains on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an IBE, or have a full deferred tax asset valuation allowance.

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

obtained

the

Banco

Santander

Puerto

Rico

(“BSPR”)

acquisition

September

2020.

One

defined

benefit

pension

plan covers

substantially all

of BSPR’s

former

employees who

were active

before January

1, 2007,

while

the other

defined

benefit pension plan covers personnel of an institution previously acquired

by BSPR. Benefits are based on salary and years of service.

The accrual of benefits under the Pension Plans is frozen to all participants.

The

Corporation

requires

recognition

plan’s

overfunded

and

underfunded

status

asset

liability

with

offsetting

adjustment to accumulated other comprehensive loss pursuant

to the ASC Topic 715,

“Compensation-Retirement Benefits.”

The following table presents the components of net periodic cost (benefit) for

the indicated periods:

Affected Line Item

in the Consolidated

Quarter Ended June 30,

Six-Month Period Ended June

30,

Statements of Income

2023

2022

2023

2022

(In thousands)

Net periodic cost (benefit), pension

plans:

Interest cost

Other expenses

950

654

1,900

1,308

Expected return on plan assets

Other expenses

(885)

(1,040)

(1,771)

(2,079)

Net periodic cost (benefit), pension plans

(386)

129

(771)

Net periodic cost, postretirement plan

Other expenses

Net periodic cost (benefit)

(384)

141

(768)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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 PR (the

“2011 PR Code”),

the Corporation and its subsidiaries

are treated as

separate

taxable

entities

and

are

not

entitled

file

consolidated

tax

returns

and,

thus,

the

Corporation

generally

not

entitled

utilize

losses

from

one

subsidiary

offset

gains

another

subsidiary.

Accordingly,

order

obtain

tax

benefit

from

net

operating

loss

(“NOL”),

particular

subsidiary

must

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

Pursuant

the

2011

Code,

the

carry-forward

period

for

NOLs

incurred

during

taxable

years

that

commenced

after

December

31,

2004

and

ended

before

January

2013

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

Puerto

Rico

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

of the

Bank, and

through the

Bank’s

subsidiary,

FirstBank Overseas

Corporation, whose

interest income

and gains

on sales

are exempt

from Puerto

Rico income

taxation. The

IBE unit

and FirstBank

Overseas Corporation

were created

under the

International Banking

Entity

Act of

Puerto

Rico, which

provides for

total Puerto

Rico tax

exemption on

net

income derived by

IBEs operating in

Puerto Rico on the

specific activities identified

in the IBE Act.

An IBE that operates

as a unit of

a bank

pays income

taxes at

the corporate

standard rates

to the

extent that

the IBE’s

net income

exceeds

% of

the bank’s

total net

taxable income.

For the second

quarter of 2023,

the Corporation recorded

an income tax

expense of $

30.3

million compared to

34.1

million in the

second quarter

of 2022.

For the first

six months of

2023, the

Corporation recorded

an income tax

expense of

62.2

million compared

77.1

million

for

the

same

period

2022.

The

decrease

income

tax

expense

for

the

quarter

and

first

six

months

2023,

compared

to the

same period

a year

ago,

was related

to lower

pre-tax

income

and a

higher proportion

of exempt

to taxable

income

resulting

lower

effective

tax

rate.

The

Corporation’s

estimated

annual

effective

tax

rate,

excluding

entities

with

pre-tax

losses

from which a

tax benefit cannot

be recognized and

discrete items, was

30.1

% for the

first six months

of 2023, compared

31.7

% for

the first six months of 2022.

As of

June

30,

2023,

the

Corporation

had

deferred

tax

asset of

153.9

million,

net

of a

valuation

allowance

184.2

million

against the deferred tax

asset, compared to a

deferred tax asset of $

155.6

million, net of a valuation

allowance of $

185.5

million, as of

December 31,

2022. The

net deferred

tax asset of

the Corporation’s

banking subsidiary,

FirstBank, amounted

to $

153.9

million as

June

30,

2023,

net

valuation

allowance

147.0

million,

compared

net

deferred

tax

asset

155.6

million,

net

valuation allowance of $

149.5

million, as of December 31, 2022.

The Corporation maintains a full valuation

allowance for its deferred

tax assets associated with capital losses carry forward and unrealized

losses of available-for-sale debt securities.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

the

U.S.

Internal

Revenue Code

(“Section 382”)

covering a

comprehensive period

and concluded

that an

ownership

change had

occurred during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

that

would

have

incurred

the

absence of such limitation. The Corporation has mitigated

to an extent the adverse effects associated with the

Section 382 limitation as

any

such

tax

paid

the

U.S.

USVI

can

creditable

against

Puerto

Rico

tax

liabilities

taken

deduction

against

taxable

income. However,

our ability

to reduce

our Puerto

Rico tax

liability through

such a

credit or

deduction depends

on our

tax profile

each

annual

taxable

period,

which

dependent

various

factors.

For

the

quarter

and

six-month

period

ended

June

30,

2023,

the

Corporation

incurred

current

income

tax

expense

approximately

1.5

million

and

4.0

million,

respectively,

its

U.S.

operations, compared to

2.5

million and $

4.1

million, respectively,

for comparable periods in 2022.

The limitation did not impact

the

USVI operations in the quarters and six-month periods ended June

30, 2023 and 2022.

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.

June

30,

2023,

the

Corporation

had

0.2

million of

accrued interest

and penalties

related to

uncertain tax

positions in

the amount

of $

1.0

million that

it acquired

from BSPR,

which,

if recognized,

would decrease

the

effective

income tax

rate in

future

periods.

The amount

unrecognized

tax benefits

may

increase

decrease

the

future

for

various

reasons,

including

adding

amounts

for

current

tax

year

positions,

expiration

open

income

tax returns

due

to the

statute of

limitations,

changes

in management’s

judgment about

the level

of uncertainty,

the status

examinations,

litigation

and

legislative activity,

and

the addition

or elimination

of uncertain

tax positions.

The statute

limitations

under the 2011

PR Code is four

years after a

tax return is

due or filed,

whichever is later;

the statute of

limitations for U.S.

and USVI

income

tax

purposes

three

years

after

tax

return

due

filed,

whichever

later.

The

completion

audit

the

taxing

authorities

the

expiration

the

statute

limitations

for

given

audit

period

could

result

adjustment

the Corporation’s

liability for

income taxes. Any

such adjustment could

be material to

the results of

operations for any

given quarterly

or annual period

based, in part, upon

the results of operations

for the given period.

For U.S. and USVI

income tax purposes,

all tax years subsequent

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

subsequent to 2017 remain open to examination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

transfer

liability

(an

exit

price)

the

principal

most

advantageous

market

for

the

asset

liability

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

fair value

hierarchy for

classifying assets

and

liabilities, which is based on

whether the inputs to

the valuation techniques used

to measure fair value are

observable or unobservable.

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

Level 1

Valuations

Level

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

luations of

Level 2 assets

and liabilities

are based on

observable inputs

other than Level

1 prices, such

as quoted

prices for similar assets or liabilities, or other inputs that

are observable or can be corroborated by observable market

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

Level 3

luations of Level 3 assets and

liabilities are based on unobservable

inputs that are supported by

little or no market

activity and

are significant to

the fair value

of the assets

or liabilities. Level

3 assets and

liabilities include financial

instruments

whose value

is determined

by using

pricing models

for

which

the determination

of fair

value

requires

significant management judgment as to the estimation.

See Note 25

– Fair Value

to the audited

consolidated financial

statements included

in the 2022

Annual Report

on Form

10-K for

description of the valuation methodologies 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

June 30, 2023 and December 31, 2022:

As of June 30,

2023

As of December 31, 2022

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Debt securities available for sale:

U.S. Treasury securities

139,669

138,875

Noncallable U.S. agencies debt securities

475,295

389,787

Callable U.S. agencies debt securities

1,900,133

1,963,566

MBS

2,910,915

5,246

(1)

2,916,161

3,098,797

5,794

(1)

3,104,591

Puerto Rico government obligations

2,111

2,201

Other investments

500

Equity securities

4,891

4,861

Derivative assets

494

633

Liabilities:

Derivative liabilities

357

476

(1) Related to private label MBS.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The table below presents a reconciliation of the beginning and ending balances

of all assets measured at fair value on a recurring

basis using significant unobservable inputs (Level 3) for the quarters

and six-month periods ended June 30, 2023 and 2022:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

Level 3 Instruments Only

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

(In thousands)

Beginning balance

7,605

10,647

8,495

11,084

Total (losses)/gains:

Included in other comprehensive loss (unrealized)

(19)

(106)

(181)

(393)

Included in earnings (unrealized)

(2)

423

Principal repayments and amortization

(245)

(396)

(982)

(3)

(934)

Ending balance

7,357

10,180

7,357

10,180

___________________

(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.

(3)

Includes a $

0.5

million repayment of a matured debt security.

The tables below present quantitative information for significant assets measured at fair

value on a recurring basis using significant

unobservable inputs (Level 3) as of June 30,

2023 and December 31, 2022:

June 30,

2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

5,246

Discounted cash flows

Discount rate

16.7%

Prepayment rate

1.2%

12.0%

8.9%

Projected cumulative loss rate

0.2%

15.5%

5.6%

Puerto Rico government obligations

2,111

Discounted cash flows

Discount rate

13.4%

Projected cumulative loss rate

18.5%

December 31, 2022

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

5,794

Discounted cash flows

Discount rate

16.2%

Prepayment rate

1.5%

15.2%

11.8%

Projected cumulative loss rate

0.3%

15.6%

5.6%

Puerto Rico government obligations

2,201

Discounted cash flows

Discount rate

12.9%

Projected cumulative loss rate

19.3%

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)

the

assumed

rate

would

lead

(lower)

higher

fair

value

estimate.

See

Note

–

Debt

Securities

for

information

on the methodology used to calculate the fair value of these debt securities.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Additionally, fair value

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

As of June 30, 2023, the Corporation recorded losses or valuation adjustments

for assets recognized at fair value on a non-recurring

basis and still held at June 30, 2023, as shown in the following table:

Carrying value as of June 30, 2023

Related to (losses) gains

recorded for the Quarter

Ended June 30, 2023

Related to (losses) gains

recorded for the Six-

Month Period Ended

June 30, 2023

(Losses) gains recorded

for the Quarter Ended

June 30, 2023

(Losses) gains recorded

for the Six-Month Period

Ended June 30, 2023

(In thousands)

Level 3:

Loans receivable

(1)

8,011

8,920

(6,515)

(6,744)

OREO

(2)

1,471

2,038

Level 2:

Loans held for sale

(3)

14,295

(73)

(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)

The Corporation derived the fair value of these loans based

on secondary market prices of instruments with similar characteristics.

As of June 30,

2022, the Corporation recorded losses or valuation adjustments for assets recognized

at fair value on a non-recurring

basis and still held at June 30, 2022, as shown in the following table:

Carrying value as of June 30, 2022

Related to (losses) gains

recorded for the Quarter

Ended June 30, 2022

Related to losses

recorded for the Six-

Month Period Ended

June 30, 2022

(Losses) gains recorded

for the Quarter Ended

June 30, 2022

Losses recorded for the

Six-Month Period Ended

June 30, 2022

(In thousands)

Level 3:

Loans receivable

(1)

5,422

29,967

(817)

(3,848)

OREO

(2)

2,140

2,741

(38)

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.

See Note

25 –

Fair Value,

to the

audited consolidated

financial statements

included in

the 2022

Annual Report

on Form

10-K for

qualitative information regarding the

fair value measurements for Level 3 financial

instruments measured at fair value on nonrecurring

basis.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

fair value level of the hierarchy of financial

instruments as of June 30, 2023 and December 31, 2022:

Total Carrying Amount

in Statement of

Financial Condition as

of June 30, 2023

Fair Value Estimate as

June 30, 2023

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

1,047,534

Available-for-sale debt

securities (fair value)

5,433,369

139,669

5,286,343

7,357

Held-to-maturity debt securities (amortized cost)

424,726

Less: ACL on held-to-maturity debt securities

(8,401)

Held-to-maturity debt securities, net of ACL

416,325

410,181

244,521

165,660

Equity securities (amortized cost)

43,210

(1)

Other equity securities (fair value)

4,891

Loans held for sale (lower of cost or market)

14,295

Loans held for investment (amortized cost)

11,719,315

Less: ACL for loans and finance leases

(267,058)

Loans held for investment, net of ACL

11,452,257

11,256,830

MSRs (amortized cost)

28,034

44,420

Derivative assets (fair value)

(2)

494

Liabilities:

Deposits (amortized cost)

16,819,692

16,820,272

Short-term securities sold under agreements to repurchase (amortized

cost)

73,934

74,030

Advances from the FHLB (amortized cost):

Long-term

500,000

495,589

Other long-term borrowings (amortized cost)

161,700

162,983

Derivative liabilities (fair value)

(2)

357

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

34.7

million, which are considered restricted.

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

2022

Fair Value Estimate as

December 31, 2022

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

480,505

Available-for-sale debt

securities (fair value)

5,599,520

138,875

5,452,150

8,495

Held-to-maturity debt securities (amortized cost)

437,537

Less: ACL on held-to-maturity debt securities

(8,286)

Held-to-maturity debt securities, net of ACL

429,251

427,115

260,106

167,009

Equity securities (amortized cost)

50,428

(1)

Other equity securities (fair value)

4,861

Loans held for sale (lower of cost or market)

12,306

Loans held for investment (amortized cost)

11,552,825

Less: ACL for loans and finance leases

(260,464)

Loans held for investment, net of ACL

11,292,361

11,106,809

MSRs (amortized cost)

29,037

44,710

Derivative assets (fair value)

(2)

633

Liabilities:

Deposits (amortized cost)

16,143,467

16,139,937

Short-term securities sold under agreements to repurchase (amortized

cost)

75,133

75,230

Advances from the FHLB (amortized cost)

Short-term

475,000

474,731

Long-term

200,000

199,865

Other long-term borrowings (amortized cost)

183,762

187,246

Derivative liabilities (fair value)

(2)

476

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

42.9

million, which are considered restricted.

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

The short-term nature

of certain assets and

liabilities result in their

carrying value approximating

fair value. These include

cash and

cash

due

from

banks

and

other

short-term

assets,

such

FHLB

stock.

Certain

assets,

the

most

significant

being

premises

and

equipment,

goodwill

and

other

intangible

assets, are

not

considered

financial

instruments

and

are

not

included

above. Accordingly,

this fair

value

information

is not

intended

to, and

does not,

represent

the Corporation’s

underlying

value.

Many of

these assets

and

liabilities that

are subject

to the

disclosure requirements

are not

actively traded,

requiring management

to estimate

fair values.

These

estimates

necessarily

involve

the

use

assumptions

and

judgment

about

wide

variety

factors,

including

but

not

limited

to,

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

and appropriate discount rates.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

tables summarize

the Corporation’s

revenue, which

includes net

interest income

on financial

instruments and

non-

interest income,

disaggregated by

type of

service and

business segment

for the

quarters and

six-month periods

ended June

30, 2023

and 2022:

Quarter ended June 30, 2023

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

21,360

142,597

12,933

(2,789)

19,690

6,024

199,815

Service charges and fees on deposit accounts

5,087

3,326

172

702

9,287

Insurance commissions

2,464

204

2,747

Merchant-related income

2,035

385

2,459

Credit and debit card fees

8,117

521

8,676

Other service charges and fees

1,508

1,094

660

207

3,502

Not in scope of ASC Topic

606

(1)

3,029

1,010

3,697

1,680

195

(11)

9,600

Total non-interest income

3,062

20,221

8,145

1,680

1,155

2,008

36,271

Total Revenue

24,422

162,818

21,078

(1,109)

20,845

8,032

236,086

Quarter ended June 30, 2022

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

26,335

102,397

31,379

11,466

18,688

5,921

196,186

Service charges and fees on deposit accounts

5,495

3,069

157

745

9,466

Insurance commissions

2,724

202

2,946

Merchant-related income

1,711

381

327

2,436

Credit and debit card fees

7,391

449

7,864

Other service charges and fees

2,066

876

485

157

3,643

Not in scope of ASC Topic

606

(1)

4,108

396

101

(51)

(4)

4,586

Total non-interest

income

4,167

19,783

4,448

(51)

678

1,916

30,941

Total Revenue

30,502

122,180

35,827

11,415

19,366

7,837

227,127

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Six-Month Period Ended June 30, 2023

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

43,148

280,341

27,873

(3,447)

40,620

12,165

400,700

Service charges and fees on deposit accounts

10,573

6,480

337

1,438

18,828

Insurance commissions

7,104

107

383

7,594

Merchant-related income

4,298

853

5,219

Credit and debit card fees

15,755

1,017

16,834

Other service charges and fees

194

2,660

1,948

1,243

551

6,596

Not in scope of ASC Topic

606

(1)

5,942

1,865

3,842

1,840

235

(6)

13,718

Total non-interest income

6,136

42,255

12,320

1,840

2,002

4,236

68,789

Total Revenue

49,284

322,596

40,193

(1,607)

42,622

16,401

469,489

Six-Month Period Ended June 30, 2022

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

52,114

191,943

71,794

18,875

35,170

11,914

381,810

Service charges and fees on deposit accounts

11,034

6,045

295

1,455

18,829

Insurance commissions

7,691

481

8,221

Merchant-related income

3,533

754

716

5,025

Credit and debit card fees

14,062

(4)

859

14,954

Other service charges and fees

202

3,176

1,989

984

314

6,665

Not in scope of ASC Topic

606

(1)

9,217

750

177

(163)

10,105

Total non-interest income

9,419

40,246

9,002

(163)

1,422

3,873

63,799

Total Revenue

61,533

232,189

80,796

18,712

36,592

15,787

445,609

(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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

For the quarters

and six-month periods

ended June 30,

2023 and 2022,

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,

the

audited

consolidated

financial

statements

included

the

2022

Annual Report on Form 10-K for a discussion of major revenue streams under

the scope of ASC Topic 606.

Contract Balances

contract

liability

entity’s

obligation

transfer

goods

services

customer

exchange

for

consideration

from

the

customer.

FirstBank

participates

merchant

revenue-sharing

agreement

with

another

entity

which

the

Bank

sold

its

merchant

contracts portfolio and related point-of-sale terminals,

and a growth agreement with an international

card service association to expand

the

customer

base

and

enhance

product

offerings.

FirstBank

recognizes

the

revenue

under

these

agreements

over

time, as

the

Bank

completes its performance obligations.

The following table shows the activity of contract liabilities for the quarters

and six-month periods ended June 30, 2023 and 2022:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Beginning balance

760

1,154

841

1,443

Revenue recognized

(152)

(105)

(233)

(394)

Ending balance

608

1,049

608

1,049

As of June 30, 2023 and 2022, there were no contract assets recorded on the

Corporation’s consolidated financial

statements.

Other

Except for the

contract liabilities noted above,

the Corporation did not

have any other performance

obligations as of

June 30, 2023.

The Corporation

also did

not have

any material contract

acquisition costs

and did

not make

any significant

judgments or

estimates in

recognizing revenue for financial reporting purposes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 20 – 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

by geographic

areas for

its operations

outside

Puerto

Rico.

As of

June 30,

2023,

the

Corporation

had

six

reportable

segments:

Mortgage

Banking;

Consumer

(Retail)

Banking;

Commercial

and

Corporate

Banking;

Treasury

and

Investments;

United

States

Operations;

and

Virgin

Islands

Operations.

Management

determined

the

reportable

segments

based

the

internal

structure

used to

evaluate performance

and to

assess where

to allocate

resources. Other

factors, such

as the

Corporation’s

organizational chart,

nature

the

products,

distribution

channels,

and

the

economic

characteristics

the

products,

were

also

considered

the

determination of the reportable segments.

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage Banking

segment also

acquires and

sells mortgages

in the

secondary markets.

In addition,

the Mortgage

Banking segment

includes mortgage loans purchased from

other local banks and mortgage bankers.

The Consumer (Retail) Banking segment

consists of

the Corporation’s

consumer lending

and deposit-taking

activities conducted

mainly through

its branch

network and

loan centers.

The

Commercial and

Corporate Banking

segment consists of

the Corporation’s

lending and other

services for

large customers

represented

by specialized

and middle-market

clients and

the public

sector.

The Commercial

and Corporate

Banking segment

offers commercial

loans,

including

commercial

real

estate

and

construction

loans,

and

floor

plan

financings,

well

other

products,

such

cash

management

and

business

management

services.

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

manage

and

enhance

liquidity.

This

segment

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking,

and

the

United

States

Operations

segments

finance

their

lending

activities

and

borrows

from

those

segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

Treasury

and Investments

and the

Consumer (Retail)

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

interest income

or expense

and the Corporation’s

actual

net

interest income

from

centralized

management

of funding

costs is

reported

in the

Treasury

and Investments

segment.

The

United States

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

United States

mainland,

including

commercial and consumer banking

services. The Virgin

Islands Operations segment consists of

all banking activities conducted by the

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

services.

The

accounting

policies

the

segments

are

the

same

those

referred

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, to the audited consolidated financial

statements included in the 2022 Annual Report on 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The following tables present information about the reportable segments for

the indicated periods:

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Quarter ended June 30, 2023:

Interest income

31,605

86,989

65,356

29,528

32,098

6,628

252,204

Net (charge) credit for transfer

of funds

(10,245)

86,144

(52,423)

(22,739)

(737)

Interest expense

(30,536)

(9,578)

(11,671)

(604)

(52,389)

Net interest income (loss)

21,360

142,597

12,933

(2,789)

19,690

6,024

199,815

Provision for credit losses - (benefit) expense

(3,829)

13,669

7,675

(16)

4,017

714

22,230

Non-interest income

3,062

20,221

8,145

1,680

1,155

2,008

36,271

Direct non-interest expenses

5,533

41,814

9,340

923

8,502

6,731

72,843

Segment income (loss)

22,718

107,335

4,063

(2,016)

8,326

587

141,013

Average earnings assets

2,144,340

3,241,768

3,770,463

6,364,024

2,038,621

371,685

17,930,901

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Quarter ended June 30, 2022:

Interest income

33,205

73,487

47,513

27,143

21,081

6,196

208,625

Net (charge) credit for transfer of funds

(6,870)

34,039

(16,134)

(10,705)

(330)

Interest expense

(5,129)

(4,972)

(2,063)

(275)

(12,439)

Net interest income

26,335

102,397

31,379

11,466

18,688

5,921

196,186

Provision for credit losses - (benefit) expense

(3,605)

15,055

(470)

(35)

(1,678)

736

10,003

Non-interest income (loss)

4,167

19,783

4,448

(51)

678

1,916

30,941

Direct non-interest expenses

5,681

40,546

9,048

905

8,237

6,765

71,182

Segment income

28,426

66,579

27,249

10,545

12,807

336

145,942

Average earnings assets

2,243,188

2,860,086

3,624,176

7,769,754

2,036,108

370,590

18,903,902

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Six-Month Period Ended June 30, 2023

Interest income

63,512

170,163

127,699

56,994

63,212

13,020

494,600

Net (charge) credit for transfer of funds

(20,364)

163,879

(99,826)

(42,278)

(1,411)

Interest expense

(53,701)

(18,163)

(21,181)

(855)

(93,900)

Net interest income

43,148

280,341

27,873

(3,447)

40,620

12,165

400,700

Provision for credit losses - (benefit) expense

(4,335)

28,893

5,139

(25)

8,672

(612)

37,732

Non-interest income

6,136

42,255

12,320

1,840

2,002

4,236

68,789

Direct non-interest expenses

10,620

83,441

18,705

1,870

16,806

13,556

144,998

Segment income

42,999

210,262

16,349

(3,452)

17,144

3,457

286,759

Average earnings assets

2,157,626

3,208,146

3,742,205

6,290,669

2,053,154

369,026

17,820,826

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Six-Month Period Ended June 30, 2022

Interest income

66,276

143,924

94,540

49,327

39,938

12,474

406,479

Net (charge) credit for transfer of funds

(14,162)

58,321

(22,746)

(20,654)

(759)

Interest expense

(10,302)

(9,798)

(4,009)

(560)

(24,669)

Net interest income

52,114

191,943

71,794

18,875

35,170

11,914

381,810

Provision for credit losses - (benefit) expense

(7,308)

26,199

(17,092)

(423)

(5,225)

(3,799)

Non-interest income (loss)

9,419

40,246

9,002

(163)

1,422

3,873

63,799

Direct non-interest expenses

12,587

79,817

17,907

1,790

16,716

13,738

142,555

Segment income

56,254

126,173

79,981

17,345

25,101

1,999

306,853

Average earnings assets

2,268,279

2,810,062

3,662,720

7,931,699

2,050,791

374,358

19,097,909

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Net income:

Total income for segments

141,013

145,942

286,759

306,853

Other operating expenses

(1)

40,074

37,144

83,187

72,430

Income before income taxes

100,939

108,798

203,572

234,423

Income tax expense

30,284

34,103

62,219

77,128

Total consolidated net income

70,655

74,695

141,353

157,295

Average assets:

Total average earning assets for segments

17,930,901

18,903,902

17,820,826

19,097,909

Average non-earning assets

857,677

820,924

852,680

890,043

Total consolidated average assets

18,788,578

19,724,826

18,673,506

19,987,952

(1)

Expenses pertaining to corporate administrative functions that support

the operating segment, but are not specifically attributable to

or managed by any segment, are not included in the

reported financial results of the operating segments. The

unallocated corporate expenses include certain general and administrative

expenses and related depreciation and amortization

expenses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 21 – SUPPLEMENTAL

STATEMENT

OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information is as follows for the

indicated periods:

Six-Month Period Ended June 30,

2023

2022

(In thousands)

Cash paid for:

Interest on borrowings

84,530

26,148

Income tax

82,215

15,295

Operating cash flow from operating leases

8,630

9,156

Non-cash investing and financing activities:

Additions to OREO

10,738

10,698

Additions to auto and other repossessed assets

29,720

20,575

Capitalization of servicing assets

1,238

1,958

Loan securitizations

65,092

78,397

Loans held for investment transferred to held for sale

2,962

2,443

Payable related to unsettled purchases of investment securities

4,502

20,202

ROU assets obtained in exchange for operating lease liabilities

2,263

1,158

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

NOTE 22 – REGULATORY

MATTERS, COMMITMENTS,

AND CONTINGENCIES

Regulatory Matters

The

Corporation

and

FirstBank

are

each

subject

various

regulatory

capital

requirements

imposed

the

U.S.

federal

banking

agencies. Failure

to meet

minimum capital

requirements can

result in

certain mandatory

and possibly

additional discretionary

actions

by regulators

that, if

undertaken, could

have a

direct material

adverse effect

on the

Corporation’s

financial statements

and activities.

Under

capital

adequacy

guidelines

and

the

regulatory

framework

for

prompt

corrective

action,

the

Corporation

must

meet

specific

capital

guidelines

that

involve

quantitative

measures

the Corporation’s

and

FirstBank’s

assets,

liabilities,

and

certain

off-balance

sheet items

as calculated

under regulatory

accounting practices.

The Corporation’s

capital amounts

and classification

are also

subject

to qualitative judgments and

adjustment by the regulators with respect

to minimum capital requirements, components,

risk weightings,

and

other

factors.

June

30,

2023

and

December

31,

2022,

the

Corporation

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

for

capital

adequacy

purposes

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

considered

well

capitalized

institution

under

the

regulatory

framework

for

prompt

corrective

action.

June

30,

2023,

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,

the

election

qualified

banking

organization,

the

day

one

impact

retained earnings plus

% of the change in

the ACL (as defined

in the final rule) from

January 1, 2020 to

December 31, 2021 will

delayed

for

two

years

and

phased-in

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition

period

five

years.

Accordingly,

June

30,

2023,

the

capital

measures

the

Corporation

and

the

Bank

included

32.4

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

2020

December

31,

2021,

and

32.4

million

remains

excluded

phase-in

during

the

remainder of

the three-year

transition period.

The federal

financial regulatory

agencies may

take other

measures affecting

regulatory

capital to

address macroeconomic

conditions, as

well as

the effect

of recent

regional bank

failures in

the U.S.

mainland, although

the

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

The regulatory capital position of

the Corporation and the FirstBank

as of June 30, 2023 and

December 31, 2022, which reflects

the

delay in the full 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 June 30, 2023

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,396,564

19.15

1,001,189

8.0

N/A

FirstBank

2,326,581

18.59

1,001,046

8.0

1,251,307

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,082,843

16.64

563,169

4.5

N/A

FirstBank

2,069,732

16.54

563,088

4.5

813,350

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,082,843

16.64

750,892

6.0

N/A

FirstBank

2,169,732

17.34

750,784

6.0

1,001,046

8.0

Leverage ratio

First BanCorp.

2,082,843

10.73

776,742

4.0

N/A

FirstBank

2,169,732

11.18

776,431

4.0

970,539

5.0

As of December 31, 2022

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,385,866

19.21

993,405

8.0

N/A

FirstBank

2,346,093

18.90

993,264

8.0

1,241,580

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,052,333

16.53

558,790

4.5

N/A

FirstBank

2,090,832

16.84

558,711

4.5

807,027

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,052,333

16.53

745,054

6.0

N/A

FirstBank

2,190,832

17.65

744,948

6.0

993,264

8.0

Leverage ratio

First BanCorp.

2,052,333

10.70

767,075

4.0

N/A

FirstBank

2,190,832

11.43

766,714

4.0

958,392

5.0

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Commitments

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

credit.

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

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.

of June

30, 2023,

commitments to

extend credit

amounted to

approximately $

2.0

billion, of

which $

1.0

billion relates

to retail

credit

card

loans.

addition,

commercial

and

financial

standby

letters

credit

June

30,

2023

amounted

approximately

66.0

million.

Contingencies

June

30,

2023,

First

BanCorp.

and

its

subsidiaries

were

defendants

various

legal

proceedings,

claims

and

other

loss

contingencies

arising

the

ordinary

course

business.

least

quarterly

basis,

the

Corporation

assesses

its

liabilities

and

contingencies in connection

with threatened and

outstanding legal proceedings,

claims and other

loss contingencies utilizing

the latest

information

available. For

legal proceedings,

claims and

other loss

contingencies

where it

is both

probable that

the Corporation

will

incur

loss

and

the

amount

can

reasonably

estimated,

the

Corporation

establishes

accrual

for

the

loss.

Once

established,

the

accrual

adjusted

appropriate

reflect

any

relevant

developments.

For

legal

proceedings,

claims

and

other

loss

contingencies

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

is established.

Any estimate

involves significant

judgment, given

the varying

stages of

the proceedings

(including the

fact that

some of

them are

currently in

preliminary stages),

the existence

in some

of the

current proceedings

of multiple

defendants whose

share of

liability has

yet

determined,

the

numerous

unresolved

issues

the

proceedings,

and

the

inherent

uncertainty

the

various

potential

outcomes of such

proceedings. Accordingly,

the Corporation’s

estimate will change

from time to time,

and actual losses

may be more

or less than the current estimate.

While

the

final

outcome

legal

proceedings,

claims,

and

other

loss

contingencies

inherently

uncertain,

based

information

currently

available,

management

believes

that

the

final

disposition

the

Corporation’s

legal

proceedings,

claims

and

other

loss

contingencies,

the

extent

not

previously

provided

for,

will

not

have

material

adverse

effect

the

Corporation’s

consolidated

financial position as a whole.

If management believes that, based on available information,

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

loss in

excess

any

accrual)

will

incurred

connection

with

any

legal

contingencies,

the

Corporation

discloses

estimate

the

possible loss or

range of loss,

either individually or

in the aggregate,

as appropriate, if

such an estimate can

be made, or

discloses that

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

assessment as of June 30, 2023, no such disclosures were necessary.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

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 of

June 30,

2023 and

December 31,

2022, and

the results

of its

operations

for the

quarters and

six-month periods

ended June

30,

2023 and 2022:

Statements of Financial Condition

As of June 30,

As of December 31,

2023

2022

(In thousands)

Assets

Cash and due from banks

54,625

19,279

Other investment securities

735

Investment in First Bank Puerto Rico, at equity

1,484,887

1,464,026

Investment in First Bank Insurance Agency,

at equity

22,024

28,770

Investment in FBP Statutory Trust I

1,289

1,951

Investment in FBP Statutory Trust II

3,561

Dividends receivable

700

624

Other assets

542

430

Total assets

1,568,363

1,519,376

Liabilities and Stockholders’ Equity

Liabilities:

Long-term borrowings

161,700

183,762

Accounts payable and other liabilities

8,664

10,074

Total liabilities

170,364

193,836

Stockholders’ equity

1,397,999

1,325,540

Total liabilities and stockholders’

equity

1,568,363

1,519,376

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

Statements of Income

Quarter Ended

Six-Month Period Ended

June 30,

2023

2022

2023

2022

(In thousands)

Income

Interest income on money market investments

110

Dividend income from banking subsidiaries

78,932

178,679

157,802

242,272

Dividend income from nonbanking subsidiaries

12,000

Gain on early extinguishment of debt

1,605

Other income

101

203

Total income

92,695

178,740

171,720

242,377

Expense

Other long-term borrowings

3,409

1,698

6,790

3,031

Other non-interest expenses

462

434

872

873

Total expense

3,871

2,132

7,662

3,904

Income before income taxes and equity in undistributed

earnings of subsidiaries

88,824

176,608

164,058

238,473

Income tax expense

783

793

1,861

1,899

Distribution in excess of earnings of subsidiaries

(17,386)

(101,120)

(20,844)

(79,279)

Net income

70,655

74,695

141,353

157,295

Other comprehensive (loss) income, net of tax

(54,837)

(175,923)

32,391

(507,757)

Comprehensive income (loss)

15,818

(101,228)

173,744

(350,462)

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

FINANCIAL

CONDITION

AND

RESULTS

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, 2022 (the “2022

Annual Report on Form 10-K”).

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-GAAP

financial measures are

presented, reconciliations

of non-GAAP financial

measures to the

most comparable GAAP

financial measures,

and references to non-GAAP financial measures reconciliations presented

in other sections.

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,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Recent Developments

Economy and Market Volatility

During

the

second

quarter

2023,

inflation

has

continued

trend

lower

but

remaining

elevated

levels

above

the

Federal

Reserve

(“FED”)

target.

July

2023,

the

FED

raised

interest

rates

additional

25 basis

points,

thereby

increasing

the

federal

funds rate

to a

target range

of 5.25%

to 5.50%,

bringing borrowing

costs to

the highest

level since

January 2001.

This represents

the

eleventh

time

months

that

the

FED

has

raised

rates

effort

significantly

reduce

liquidity

the

financial

markets

and

continue

to reduce

inflation. The

FED resumed

the tightening

campaign after

a pause

in June,

while noticing

the economy

has been

expanding

moderate

pace,

job

gains

have

been

robust

recent

months,

and

the

unemployment

rate

has

remained

low

while

inflation remains elevated.

The Corporation remains vigilant as to the potential impacts

that monetary policy or a potential slowdown in the U.S. economy

may

have on

credit and

loan demand.

Notwithstanding, it

is encouraged

by the

ongoing business

activity and

economic growth

in Puerto

Rico over the

short and medium

term. For example,

strong auto and

retail sales reported

during the first

half of 2023

suggest growing

consumer confidence in Puerto Rico. The economic

backdrop in Puerto Rico continues to be supported

by strong labor markets, which

have led to unemployment remaining stable, and a consistent flow of

federal disaster funds and foreign investment.

Our

quarterly

results

reflected

continued

execution

our

strategy

and

strength

our

balance

sheet,

reflected

through

deposit

growth and increased

capital levels driven

by earnings and

capital optimization. Although

total net interest

income remains stable,

the

overall higher

interest rate environment

resulted in a

lower interest margin

for the second

quarter of

2023. The

overall higher

interest

rate environment

should continue

to benefit

our interest

income as

variable loans

and cash

held at

the FED

will reprice

accordingly

and

projected

loan

growth

will occur

higher

yields.

Interest

expense,

the

other

hand,

is also

expected

increase

as maturing

deposits and

government deposits

will reprice

at higher

rates and

non-interest-bearing

and other

low-cost deposits

could continue

shift to higher

cost deposits, resulting

in margin

pressures. Credit continues

to perform well

and our liquidity

position remains strong.

With

our

disciplined

and

proactive

approach,

believe

the

Corporation

positioned

continue

growing

the

franchise

and

supporting our people and the communities we serve while enhancing shareholder

value.

Stock Repurchase Programs

On July

24, 2023,

the Corporation

announced that

its Board

of Directors

approved a

new stock

repurchase program,

under which

the Corporation

may repurchase

up to

$225 million

of its

outstanding common

stock, which

it expects

to execute

through the

end of

the third quarter of 2024.

The Corporation

expects to repurchase

approximately $150 million

in common stock

during the second

half of 2023,

of which $75

million relates to

the remaining amount

of the $350

million stock repurchase

program announced on

April 27, 2022

that was resumed

in July 2023.

The Corporation expects

to fully utilize this

remaining authorization during

the third quarter of

2023. From July 1,

2023

through August

1, 2023, the

Corporation repurchased

approximately 1.5

million shares

of common

stock for a

total purchase price

$19.5 million.

Repurchases under

the stock repurchase

programs may be

executed through

open market purchases,

accelerated share

repurchases,

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with

Rule

10b5-1

under

the

Exchange

Act.

The

Corporation’s

stock

repurchase

programs

are

subject

various

factors,

including

the

Corporation’s

capital

position,

liquidity,

financial

performance

and

alternative

uses

capital,

stock

trading

price,

and

general

market

conditions.

The

Corporation’s

stock

repurchase

programs

not

obligate

acquire

any

specific

number

and

not

have

expiration

date.

The

stock

repurchase programs may be modified, suspended, or terminated

at any time at the Corporation’s discretion.

Repurchase of Trust

Preferred Securities (“TRuPs”)

During the second quarter

of 2023, the Corporation completed

the repurchase of $21.4 million

of TRuPs of the FBP Statutory

Trust

I as

part of

a privately

-negotiated

transaction,

resulting

in a

commensurate

reduction

in the

floating

rate junior

subordinated

debentures. The purchase

price equated to 92.5%

of the $21.4 million

par value of the

TRuPs. The 7.5% discount

resulted in a gain

approximately $1.6 million, which is reflected in the consolidated statement

of income as “Gain on early extinguishment of debt.”

Release of Corporate Sustainability Report

On June 26, 2023,

the Corporation announced

the release of its Corporate

Sustainability Report for

2022, which is its second

report

on Environmental,

Social and

Governance

(“ESG”)

and sustainability

matters. This

report

highlights

the Corporation’s

strategy

and

development relating to ESG matters and covers the progress of the Corporation’s

ESG program during 2022.

London Interbank Offered Rate (“LIBOR”)

Transition

On June

30, 2023,

the US

dollar (“USD”) LIBOR

panel ended,

and USD

LIBOR rates

are no

longer considered

representative of

the

market.

For

the

transition

residual

exposures

tied

USD

LIBOR

June

30,

2023,

the

Corporation

will

continue

the

provisions

the

Adjustable

Interest

Rate

Act

(the

“LIBOR

Act”)

and

Regulation

ZZ.

June

30,

2023,

the

Corporation’s

risk

exposure

USD

LIBOR

that

mature

after

June

30,

2023

consisted

the

following:

(i)

$0.8

billion

variable-rate

commercial

and

construction loans

(including unused commitments),

(ii) $39.4

million of U.S.

agencies debt

securities and

private label mortgage-backed

securities (“MBS”)

held as

part of

the available-for-sale debt

securities portfolio,

(iii) $122.3

million of

Puerto Rico

municipalities bonds

held as

part of

the held-to-maturity

debt securities

portfolio, and

(iv) $161.7

million of

junior subordinated

debentures reported

as other

long-term borrowings in the consolidated statements

of financial condition.

Source systems have been updated to

support alternative reference rates. As

such, we have developed a SOFR-enabled

interest rate risk

monitoring framework and a strategy for managing interest

rate risk during the transition from LIBOR to SOFR.

Other Recent Developments

Following the recent failure of two

U.S. regional banks and resulting

losses to the FDIC’s

Deposit Insurance Fund (“DIF”), on

May 11,

2023, the

FDIC approved

a notice of

proposed rulemaking

that would

implement a special

assessment at an

annual rate of

approximately

12.5 basis

points over

eight quarterly

periods, commencing

with the

first quarter

of 2024,

to recover

the cost

associated with

protecting

uninsured depositors

as part

of those

financial institution

failures. The

assessment base

for the

special assessment

would be

equal to

insured depository

institution’s estimated

uninsured deposits

reported as

of December

31, 2022,

adjusted to

exclude the

first $5

billion in

estimated

uninsured

deposits.

Notwithstanding,

the

special

assessment

could

subject

change

depending

whether

there

are

any

shortfalls on

amounts collected.

If the

final rule

is issued

as proposed,

the estimated

impact of

the special

assessment on

the Corporation

would be an increase in non-interest expense

by approximately $6 million that would need to be

accrued once the proposed rule is finalized.

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.

Note

the Notes

Consolidated

Financial

Statements

included

our

2022

Annual

Report

Form

10-K,

supplemented

this

Quarterly

Report

Form

10-Q,

including

this

MD&A,

describes

the

significant

accounting policies we used in our consolidated financial statements.

Not all significant

accounting policies require

management to make

difficult, subjective

or complex judgments.

Critical accounting

estimates

are

those

estimates

made

accordance

with

GAAP

that

involve

significant

level

uncertainty

and

have

had

are

reasonably

likely

have

material

impact

the

Corporation’s

financial

condition

and

results

operations.

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;

and (iii) income taxes. For more

information regarding

valuation of financial

instruments and income taxes

policies, assumptions, and

judgments, see “Critical Accounting

Estimates” in Part

II,

Item

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

(“MD&A”),”

the

2022

Annual

Report

Form

10-K.

The

“Risk

Management

–

Credit

Risk

Management”

section

this

MD&A

details

the

policies,

assumptions, and

judgments related

to the

ACL. 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:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

interest-earning

assets,

and

interest-bearing

liabilities; and

(iii) the

repricing

characteristics of

these assets

and liabilities.

The Corporation

’s

results of

operations also

depend on

the provision

for credit

losses, non-interest

expenses (such

as personnel,

occupancy,

the FDIC

deposit insurance

premium

and other

costs), non-interest

income (mainly

service charges

and fees

on deposits,

cards and

processing income,

and insurance

income), gains

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

income taxes.

For

the

quarter

and

six-month

period

ended

June

30,

2023,

the

Corporation

had

net

income

$70.7

million

($0.39

per

diluted

common

share)

and

$141.4

million

($0.78

per

diluted

common

share),

respectively,

compared

$74.7

million

($0.38

per

diluted

common

share)

and

$157.3

million

($0.80

per

diluted

common

share),

for

the

comparable

periods

2022.

Other

relevant

selected

financial indicators for the periods presented are included below:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.51

1.52

1.53

1.59

Return on Average

Common Equity

(3)

19.66

17.82

20.31

17.18

Efficiency Ratio

(4)

47.83

47.69

48.60

48.25

(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 of the Corporation’s

GAAP financial results for the quarter ended

June 30, 2023, compared to the second

quarter of

2022, include the following:

●

Net

interest

income

for

the

quarter

ended

June

30,

2023

increased

$199.8

million,

compared

$196.2

million

for

the

second

quarter of

2022, mainly

driven by

the effect

in the

commercial

loan

portfolio of

higher

market interest

rates on

the

upward repricing of variable-rate

loans and on new

loan originations, the growth

in consumer loans, and

the impact of higher

market interest rates on

interest-bearing cash balances, partially

offset by an increase

in interest expense mainly

due to higher

rates paid on interest-bearing deposits.

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

quarter ended

June

30,

2023 was

$22.2

million,

compared

to $10.0

million

for

the second

quarter of

2022.

The increase

in the

provision

expense reflects

a $9.9

million increase

in the

provision for

the commercial

and construction

loan portfolio

resulting from

deterioration in the forecasted commercial real estate price index (“CRE price

index”).

Net charge-offs

totaled $19.3 million

for the quarter

ended June 30,

2023, or 0.67%

of average loans

on an annualized

basis,

compared to $6.0 million,

or 0.21% of average

loans,

for the second quarter

of 2022, mainly driven

by a $6.2 million charge-

off

recorded

a commercial

and

industrial

participated

loan

the

Florida

region

the power

generation

industry

and a

$6.1 million

increase in

consumer

loans net

charge-offs.

See “Provision

for

Credit Losses”

and

“Risk Management”

below

for analyses of the ACL and non-performing assets and related ratios.

●

The

Corporation

recorded

non-interest

income

$36.3

million

for

the

quarter

ended

June

30,

2023,

compared

$30.9

million

for

the

second

quarter

2022.

Non-interest

income

for

the

second

quarter

2023

includes

$3.6

million

gain

recognized

from

legal

settlement

and

the

$1.6

million

gain

the

repurchase

$21.4

million

junior

subordinated

debentures.

non-GAAP

basis,

excluding

the

effect

these

Special

Items

(as

defined

below),

adjusted

non-interest

income

increased

$0.2

million.

See

“Non-Interest

Income”

and

“Non-GAAP

Financial

Measures

and

Reconciliations”

below for additional information.

●

Non-interest expenses

for the quarter

ended June

30, 2023

increased by $4.6

million to $112.9

million. The

increase in non-

interest

expenses

mainly

reflects

$3.0

million

increase

employees’

compensation

and

benefits

expenses

due

annual

salary

merit

increases

well

higher

stock-based

compensation

expense

and

medical

insurance

premium

costs.

The

efficiency ratio

for the

second quarter

of 2023

was 47.83%,

as compared

to 47.69%

for the

same period

in 2022.

On a

non-

GAAP basis,

excluding

the

aforementioned

Special Items

the adjusted

efficiency

ratio for

the second

quarter of

2023 was

48.91%.

See

“Non-Interest

Expenses”

and

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

additional

information.

●

Income tax expense decreased to

$30.3 million for the second quarter of

2023, compared to $34.1 million for

the same period

in 2022 driven

by a lower

pre-tax income

and a higher

proportion of exempt

to taxable income

resulting in

a lower effective

tax rate. The Corporation’s

estimated effective tax rate,

excluding entities with pre-tax losses from

which a tax benefit cannot

be recognized

and discrete

items, decrease

to 30.1

for

the first

six months

of 2023,

compared

to 31.7%

for

the first

six

months of 2022.

See “Income Taxes”

below and Note

17 – Income

Taxes,

to the unaudited

consolidated financial statements

herein for additional information.

●

As of

June 30,

2023, total

assets were

approximately

$19.2 billion,

an increase

of $518.0

million from

December 31,

2022,

primarily

due

$567.0

million

increase

cash

and

cash

equivalents

mainly

attributable

the

overall

increase

total

deposits,

and

$168.5

million

increase

total

loans,

partially

offset

$186.3

million

decrease

total

investment

securities. See “Financial Condition and Operating Data Analysis” below for

additional information.

●

June

30,

2023,

total

liabilities

were

$17.8

billion,

increase

$445.5

million

from

December

31,

2022,

mainly

driven

the

overall

increase

total

deposits,

including

brokered

CDs,

partially

offset

$198.3

million

decrease

borrowings.

See

“Risk

Management

–

Liquidity

Risk”

below

for

additional

information

about

the

Corporation’s

funding

sources and strategy.

●

The Bank’s

primary sources of funding

are consumer and commercial

core deposits, which exclude

government deposits and

brokered certificates of deposit (“CDs”). As of June 30, 2023,

these core deposits, amounting to $13.0 billion, funded 67.99%

of total

assets. Approximately

$4.7 billion,

or 28.79%

of such deposits,

are uninsured

deposits. In

addition to

approximately

$3.2 billion

in cash

and free

high quality

liquid assets,

the Bank

maintains borrowing

capacity at

the FHLB

and the

FED’s

Discount

Window.

June

30,

2023,

the

Corporation

had

approximately

$1.4

billion

available

for

funding

under

the

FED’s

Discount

Window

and $980.9

million available

for additional

borrowing

capacity on

FHLB lines

of credit

based on

collateral pledged

at these

entities. On

a combined

basis, as

of June

30, 2023,

the Corporation

had $5.6

billion available

meet

liquidity

needs.

See

“Risk

Management

–

Liquidity

Risk”

below

for

additional

information

about

the

Corporation’s

funding sources and strategy.

●

June

30,

2023,

the

Corporation’s

total

stockholders’

equity

was

$1.4

billion,

increase

$72.5

million

from

December 31,

2022. The

increase was driven

by the earnings

generated in

the first half

of 2023 and

a $32.4 million

increase

the

fair

value

available-for-sale

debt

securities

recorded

part

accumulated

other

comprehensive

loss

the

consolidated statements of financial condition

as a result of changes in market

interest rates. This increase was partially offset

by $50.7 million

in dividends declared

to common stock

shareholders during

the first six

months of 2023

and the repurchase

approximately

3.6

million

common

stock

for

total

purchase

price

approximately

$50.0

million.

The

Corporation’s

CET1

capital,

tier

capital,

total

capital,

and

leverage

ratios

were

16.64%,

19.15%,

and

10.73%,

respectively,

June

30,

2023,

compared

CET1

capital,

tier

capital,

total

capital,

and

leverage

ratios

16.53%,

19.21%,

and

10.70%,

respectively,

December

31,

2022.

See

“Risk

Management

–

Capital”

below

for

additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments, decreased

by $274.9 million

to $1.2 billion

for the quarter

ended June 30,

2023. See “Financial

Condition and

Operating Data Analysis” below for additional information.

●

Total

non-performing assets

were $121.1

million as

of June

30, 2023,

a decrease

of $8.1

million, from

December 31,

2022.

The

net

decrease

was

driven

$9.5

million

reduction

nonaccrual

residential

mortgage

loans

mainly

due

loans

restored to

accrual status, partially

offset by

a $1.5 million

increase in nonaccrual

consumer loans.

See “Risk Management

–

Nonaccrual Loans and Non-Performing Assets” below for additional information.

●

Adversely

classified

commercial

and

construction

loans

decreased

$27.9

million

$65.7

million

June

30,

2023,

compared to

December 31, 2022,

mainly driven by

the payoff of

a $24.3 million

commercial and

industrial participated loan

in the Florida region in the leisure and hospitality industry.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation

has included

in this

Quarterly Report

on Form

10-Q (“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

Valuations

and on a Tax

-Equivalent Basis

Net interest

income, interest

rate spread,

and net

interest margin,

excluding the

changes in

the fair

value of

derivative instruments

and on

a tax-equivalent

basis, are

reported in

order to

provide to

investors additional

information about

the Corporation’s

net interest

income

that management

uses and

believes should

facilitate comparability and

analysis of

the periods

presented.

The changes

in the

fair value

of derivative

instruments have

no effect

on interest

due or

interest earned

on interest-bearing

liabilities or

interest-earning

assets, respectively.

The tax-equivalent

adjustment to

net interest

income recognizes

the income

tax savings

when comparing

taxable

and

tax-exempt

assets

and

assumes

marginal

income

tax

rate.

Income

from

tax-exempt

earning

assets

increased

amount

equivalent to

the taxes

that would

have been

paid if

this income

had been

taxable at

statutory rates.

Management believes

that it

is a

standard

practice

the banking

industry

present

net

interest

income,

interest

rate

spread,

and

net

interest

margin

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 “Result of Operations

– Net Interest Income”

below, for

the table that reconciles

net interest income

in accordance with GAAP

the

non-GAAP

financial

measure

net

interest

income,

excluding

valuations,

and

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 a tax-equivalent basis.

Tangible

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

common equity

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

Tangible

common equity is total

common equity

less

goodwill

and

other

intangibles.

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 to compare

the capital adequacy

of banking organizations

with significant

amounts of goodwill

or other

intangible assets,

typically stemming

from the

use of

the purchase

method of

accounting for

mergers

and acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures may

be useful to

investors. Neither

tangible common

equity nor

tangible assets, or the related measures,

should be considered in isolation or

as a substitute for stockholders’ equity,

total assets, or any

other measure

calculated in

accordance with

GAAP.

Moreover,

the manner

in which

the Corporation

calculates its

tangible common

equity, tangible assets, and

any other related measures may differ from that of other companies reporting

measures with similar names.

See “Risk

Management –

Capital” below

for the

table that

reconciles the

Corporation’s

total equity

and total

assets in

accordance

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income,

Adjusted Non-Interest Income, and Adjusted Efficiency

Ratio

supplement the

Corporation’s

financial statements

presented in

accordance with

GAAP,

the Corporation

uses, and believes

that

investors

benefit from

disclosure

of, non-GAAP

financial measures

that reflect

adjustments to

net income,

non-interest income,

and

the efficiency ratio

to exclude items that management

believes are not reflective

of core operating performance

(“Special Items”). The

financial results for

the quarter and

six-month period ended

June 30, 2022

did not include any

significant Special Items.

The financial

results for the quarter and six-month period ended June 30, 2023

included the following Special Items:

Quarter and Six-Month Period Ended June 30, 2023

$3.6

million

($2.3

million

after-tax)

gain

recognized

from

legal

settlement

reflected

the

consolidated

statements

income as part of other non-interest income.

$1.6

million

gain

the

repurchase

$21.4

million

junior

subordinated

debentures

reflected

the

consolidated

statements

income

“Gain

early

extinguishment

debt.”

The

junior

subordinated

debentures

are

reflected

the

consolidated statements

of financial condition

as “Other long-term

borrowings.” The

purchase price

equated to

92.5% of the

$21.4

million

par

value

the

TRuPs.

The

7.5%

discount

resulted

the

gain

$1.6

million.

The

gain,

realized

the

holding company level, had no effect on the income tax expense in 2023.

The following

table reconciles

for

the quarter

and six-month

period ended

June 30,

2023 the

reported

net income

to adjusted

net

income, a non-GAAP financial measure that excludes the Special Items identified

above:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

(In thousands)

Net income, as reported (GAAP)

70,655

141,353

Adjustments:

Gain recognized from a legal settlement

(3,600)

Gain on early extinguishment of debt

(1,605)

Income tax impact of adjustments

(1)

1,350

Adjusted net income (Non-GAAP)

66,800

137,498

(1)

See "Adjusted Net Income, Adjusted Non-Interest Income, and

Adjusted Efficiency Ratio" above for the individual tax

impact related to the above adjustments, which were

based on the

Puerto Rico statutory tax rate of 37.5%, as applicable.

RESULTS

OF OPERATIONS

Net Interest Income

Net interest

income is

the excess of

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

subject

interest

rate

risk

due

the

repricing

and

maturity

mismatch

the

Corporation’s

assets

and

liabilities.

addition,

variable

sources

interest

income,

such

loan

fees,

periodic

dividends, and

collection of

interest in

nonaccrual loans,

can fluctuate

from period

to period.

Net interest

income for

the quarter

and

six-month period

ended June

30, 2023

was $199.8

million and

$400.7 million,

respectively,

compared to

$196.2 million

and $381.8

million

for

the

comparable

periods

2022.

tax-equivalent

basis

and

excluding

the

changes

the

fair

value

derivative

instruments,

net

interest

income

for

the

quarter

and

six-month

period

ended

June

30,

2023

was

$205.4

million

and

$412.6

million,

respectively, compared

to $205.6 million and $398.4 million for the comparable periods in 2022.

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

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

adjusted

tax

equivalent

basis and

excluding

the

change

the fair

value

of derivative

instruments

is a

non-GAAP

financial

measure.

For

the

definition

this

non-GAAP

financial

measure,

refer

the

discussion

“Non-GAAP

Measures and Reconciliations” above.

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Quarter ended June 30,

2023

2022

2023

2022

2023

2022

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

617,356

1,530,353

7,880

2,873

5.12

0.75

Government obligations

(2)

2,909,204

2,922,226

10,973

10,090

1.51

1.38

MBS

3,757,425

4,081,573

17,087

22,804

1.82

2.24

FHLB stock

36,265

21,275

780

251

8.63

4.73

Other investments

13,739

12,595

1.69

0.38

Total investments

(3)

7,333,989

8,568,022

36,778

36,030

2.01

1.69

Residential mortgage loans

2,808,465

2,891,403

39,864

40,573

5.69

5.63

Construction loans

149,783

124,070

2,903

1,768

7.77

5.72

Commercial and industrial ("C&I") and commercial mortgage loans

5,191,040

5,054,223

89,290

64,500

6.90

5.12

Finance leases

769,316

617,399

14,714

11,410

7.67

7.41

Consumer loans

2,672,912

2,415,215

74,192

63,724

11.13

10.58

Total loans

(4)(5)

11,591,516

11,102,310

220,963

181,975

7.65

6.57

Total interest-earning assets

18,925,505

19,670,332

257,741

218,005

5.46

4.45

Interest-bearing liabilities:

Time deposits

2,511,504

2,202,228

15,667

3,838

2.50

0.70

Brokered certificates of deposit ("CDs")

333,557

76,790

3,761

404

4.52

2.11

Other interest-bearing deposits

7,517,995

8,704,448

22,176

3,452

1.18

0.16

Securities sold under agreements to repurchase

101,397

200,000

1,328

1,972

5.25

3.95

Advances from the FHLB

534,231

200,000

6,048

1,075

4.54

2.16

Other long-term borrowings

177,701

183,762

3,409

1,698

7.69

3.71

Total interest-bearing liabilities

11,176,385

11,567,228

52,389

12,439

1.88

0.43

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

205,352

205,566

Interest rate spread

3.58

4.01

Net interest margin

4.35

4.19

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Six-Month Period Ended June 30,

2023

2022

2023

2022

2023

2022

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

511,392

1,682,216

12,530

3,693

4.94

0.44

Government obligations

(2)

2,909,587

2,829,675

21,738

18,322

1.51

1.31

MBS

3,810,491

4,061,883

36,483

42,224

1.93

2.10

FHLB stock

38,539

21,370

1,201

538

6.28

5.08

Other investments

13,441

12,193

197

2.96

0.55

Total investments

(3)

7,283,450

8,607,337

72,149

64,810

2.00

1.52

Residential mortgage loans

2,821,779

2,926,236

79,658

81,260

5.69

5.60

Construction loans

147,923

119,427

5,579

3,292

7.61

5.56

C&I and commercial mortgage loans

5,179,448

5,078,910

175,175

126,504

6.82

5.02

Finance leases

752,501

602,880

28,523

22,322

7.64

7.47

Consumer loans

2,654,008

2,377,118

145,406

124,875

11.05

10.59

Total loans

(4)(5)

11,555,659

11,104,571

434,341

358,253

7.58

6.51

Total interest-earning assets

18,839,109

19,711,908

506,490

423,063

5.42

4.33

Interest-bearing liabilities:

Time deposits

2,427,399

2,282,192

26,449

8,259

2.20

0.73

Brokered CDs

250,588

84,210

5,348

881

4.30

2.11

Other interest-bearing deposits

7,531,374

8,419,880

39,692

6,206

1.06

0.15

Securities sold under agreements to repurchase

96,229

220,442

2,397

4,154

5.02

3.80

Advances from the FHLB

581,436

200,000

13,224

2,138

4.59

2.16

Other long-term borrowings

180,715

183,762

6,790

3,031

7.58

3.33

Total interest-bearing liabilities

11,067,741

11,390,486

93,900

24,669

1.71

0.44

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

412,590

398,394

Interest rate spread

3.71

3.89

Net interest margin

4.42

4.08

(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. See "Non-GAAP Financial Measures and

Reconciliations"

below.

(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 $3.0 million for

the quarters ended June 30, 2023 and 2022, respectively,

and $6.0 million and $5.6 million for the six-month periods

ended June 30, 2023 and 2022, respectively,

of income from prepayment penalties and late fees related to the Corporation’s

loan portfolio.

Part II

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023 Compared to 2022

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

(6,709)

11,716

5,007

(15,795)

24,632

8,837

Government obligations

(48)

931

883

530

2,886

3,416

MBS

(1,710)

(4,007)

(5,717)

(2,523)

(3,218)

(5,741)

FHLB stock

244

285

529

511

152

663

Other investments

160

164

Total investments

(8,222)

8,970

748

(17,273)

24,612

7,339

Residential mortgage loans

(1,173)

464

(709)

(2,943)

1,341

(1,602)

Construction loans

415

720

1,135

899

1,388

2,287

C&I and commercial mortgage loans

1,790

23,000

24,790

2,551

46,120

48,671

Finance leases

2,893

411

3,304

5,660

541

6,201

Consumer loans

7,037

3,431

10,468

15,003

5,528

20,531

Total loans

10,962

28,026

38,988

21,170

54,918

76,088

Total interest income

2,740

36,996

39,736

3,897

79,530

83,427

Interest expense on interest-bearing liabilities:

Time deposits

1,234

10,595

11,829

558

17,632

18,190

Brokered CDs

2,502

855

3,357

2,927

1,540

4,467

Other interest-bearing deposits

(953)

19,677

18,724

(2,830)

36,316

33,486

Securities sold under agreements to repurchase

(1,132)

488

(644)

(2,733)

976

(1,757)

Advances from the FHLB

2,992

1,981

4,973

6,967

4,119

11,086

Other borrowings

(86)

1,797

1,711

(99)

3,858

3,759

Total interest expense

4,557

35,393

39,950

4,790

64,441

69,231

Change in net interest income

(1,817)

1,603

(214)

(893)

15,089

14,196

Portions of the Corporation’s

interest-earning assets, mostly investments

in obligations of some U.S.

government agencies and U.S.

government-sponsored

entities (“GSEs”),

generate interest

that is

exempt from

income tax,

principally in

Puerto Rico.

Also, interest

and gains

on sales of

investments held by

the Corporation’s

international banking

entities (“IBEs”) are

tax-exempt under

Puerto Rico

tax

law

(see

Note

Income

Taxes,

the

unaudited

consolidated

financial

statements

herein

for

additional

information).

Management

believes

that

the

presentation

interest

income

adjusted

tax-equivalent

basis

facilitates

the

comparison

all

interest data

related to

these assets. The

Corporation estimated

the tax

equivalent yield

by dividing

the interest

rate spread

on exempt

assets

less

the

Puerto

Rico

statutory

tax

rate

(37.5%)

and

adding

the

average

cost

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,

provides additional

information about

the Corporation’s

net interest

income and

facilitates comparability

and

analysis from

period to

period. The

changes in

the fair

value of

the derivative

instruments have

no effect

on 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 June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(Dollars in thousands)

Interest income - GAAP

252,204

208,625

494,600

406,479

Unrealized (gain) loss on derivative instruments

(3)

(9)

(24)

Interest income excluding valuations - non-GAAP

252,201

208,616

494,603

406,455

Tax-equivalent adjustment

5,540

9,389

11,887

16,608

Interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

257,741

218,005

506,490

423,063

Interest expense - GAAP

52,389

12,439

93,900

24,669

Net interest income - GAAP

199,815

196,186

400,700

381,810

Net interest income excluding valuations - non-GAAP

199,812

196,177

400,703

381,786

Net interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

205,352

205,566

412,590

398,394

Average Balances

Loans and leases

11,591,516

11,102,310

11,555,659

11,104,571

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

cash balances

7,333,989

8,568,022

7,283,450

8,607,337

Average Interest-Earning Assets

18,925,505

19,670,332

18,839,109

19,711,908

Average Interest-Bearing Liabilities

11,176,385

11,567,228

11,067,741

11,390,486

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.35%

4.25%

5.29%

4.16%

Average rate on interest-bearing liabilities - GAAP

1.88%

0.43%

1.71%

0.44%

Net interest spread - GAAP

3.47%

3.82%

3.58%

3.72%

Net interest margin - GAAP

4.23%

4.00%

4.29%

3.91%

Average yield on interest-earning assets excluding valuations

- non-GAAP

5.35%

4.25%

5.29%

4.16%

Average rate on interest-bearing liabilities

1.88%

0.43%

1.71%

0.44%

Net interest spread excluding valuations

- non-GAAP

3.47%

3.82%

3.58%

3.72%

Net interest margin excluding valuations - non-GAAP

4.23%

4.00%

4.29%

3.91%

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

basis and excluding

valuations - non-GAAP

5.46%

4.45%

5.42%

4.33%

Average rate on interest-bearing liabilities

1.88%

0.43%

1.71%

0.44%

Net interest spread on a tax-equivalent basis

and excluding valuations - non-GAAP

3.58%

4.01%

3.71%

3.89%

Net interest margin on a tax-equivalent basis and excluding

valuations - non-GAAP

4.35%

4.19%

4.42%

4.08%

Net interest income amounted to

$199.8 million for the quarter

ended June 30, 2023, an increase

of $3.6 million, when compared

$196.2 million for same period in 2022. The $3.6 million increase in net

interest income was primarily due to:

●

A $38.8 million increase in interest income on loans including:

A $25.5 million increase in interest

income on commercial and construction

loans, of which approximately $24.

million

was related

to the

effect of

higher market

interest rates

on the

upward repricing

of variable-rate

loans and

on new

loan

originations,

and

approximately

$2.9

million

was

the

$229.9

million

increase

the

average

balance

this

portfolio (excluding

Small Business Administration

Paycheck Protection

Program (“SBA PPP”)

loans). These

variances

were partially

offset by

a reduction

in interest

income from

SBA PPP

loans. The

interest income

recognized from

SBA

PPP loans for the quarters ended June 30, 2023 and 2022, amounted to $0.1

million and $2.0 million, respectively.

As of June 30, 2023, the

interest rate on approximately 54% of

the Corporation’s

commercial and construction loans was

tied to variable

rates, with 29%

based upon LIBOR

or SOFR of

3 months or

less, 13% based

upon the Prime

rate index,

and

12%

based

other

indexes.

For

the

second

quarter

2023,

the

average

one-month

LIBOR

increased

410

basis

points,

the

average

three-month

LIBOR increased

388

basis points,

the

average

Prime

rate increased

422

basis points,

and the average three-month SOFR increased

382 basis points, compared to the

average rates for such indexes during

the

second quarter of 2022.

A $13.8 million increase in interest

income on consumer loans and finance

leases, primarily driven by the $409.6

million

increase in the average balance

of this portfolio, which

increased interest income by approximately

$10.1 million, and an

approximately $3.7 million

increase in interest income

associated with the positive

effects of higher market

interest rates

on new consumer loan originations and the repricing of the credit cards portfolio.

Partially offset by:

A $0.5 million

decrease in interest

income on residential

mortgage loans, primarily

related to an

$82.9 million reduction

the

average

balance

of this

portfolio,

which

resulted

in an

approximate

decrease

$1.1

million

interest income,

partially offset by the positive effect of new loan

originations at higher current market interest rates.

●

$4.8 million increase in interest income from interest-bearing cash

balances and investment securities, including:

$5.0

million

increase

interest

income

from

interest-bearing

cash

balances,

which

consisted

primarily

cash

balances deposited at

the FED, mainly due

to the effect

of higher market interest

rates, partially offset

by the impact of a

$913.0 million decrease in the average volume of interest-bearing

cash balances.

$1.3

million

increase

interest

income

Puerto

Rico

municipal

bonds,

mainly

due

the

upward

repricing

variable-rate bonds.

A $0.3

million

increase

interest income

U.S. government

and

agencies

debt

securities, mainly

driven

higher-

yielding securities purchased late in the second quarter of 2022.

A $0.5 million increase in dividends received from the FHLB during the second quarter

of 2023.

Partially offset by:

A $2.4

million decrease

in interest

income on

U.S. agencies

MBS, of

which $1.5

million was

associated with

a $324.1

million decrease

in the

average balance

of this

portfolio, and

the remaining

variance to

a higher

level of

U.S. agencies’

MBS premium amortization expense associated with changes in anticipated

prepayments.

Partially offset by:

●

A $33.9 million increase

in interest expense on interest-bearing deposits, including:

An $18.7 million

increase in interest expense

on interest-bearing checking

and saving accounts,

driven by an

increase of

approximately

$20.5

million

associated

with

higher

interest

rates

paid

the

second

quarter

2023

result

the

overall

higher

interest

rate

environment,

partially

offset

decrease

approximately

$1.8

million

resulting

from

$1.2

billion decline

in the

average balance

of these

deposits. The

average

cost of

interest-bearing

checking

and

saving

accounts increased by

102 basis points to

1.18% in the

second quarter of

2023 as compared

to 0.16% in

the same period

2022.

Excluding

public

sector

deposits,

the

average

cost

interest-bearing

checking

and

saving

accounts

for

the

second quarter of 2023 was 0.67%, compared to 0.17% for the same period

a year ago.

An $11.8

million increase

in interest

expense on

time deposits,

excluding brokered

CDs, mainly

associated with

higher

rates

paid

the

second

quarter

2023

new

issuances

and

renewals

also

associated

with

the

higher

interest

rate

environment.

The average

cost of

time deposits

in the

second quarter

of 2023,

excluding brokered

CDs, increased

180

basis points to 2.50% when compared to the same period in 2022

A $3.4

million increase

in interest

expense on

brokered CDs,

of which

$2.5 million

was associated

with the

increase of

$256.8 million in the average balance.

●

$6.0 million net increase in interest expense on borrowings, including:

A $5.0

million increase

in interest

expense on

advances from

the FHLB,

of which

$3.0 million

was associated

with an

increase

$334.2

million

the

average

balance

increase

available

cash

precautionary

measure

the

first

quarter of 2023, and $2.0 million was associated with new FHLB advances

at higher interest rates.

$1.7

million

increase

interest

expense

other

long-term

borrowings,

driven

the

upward

repricing

junior

subordinated debentures tied to the increase in the three-month LIBOR index.

$0.7

million

decrease

interest

expense

repurchase

agreements,

mainly

driven

reduction

the

average

balance of $98.6 million, partially offset by a higher average cost of

funds in the second quarter of 2023.

Net interest

income amounted

to $400.7

million for

the six-month

period ended

June 30, 2023,

an increase

of $18.9

million, when

compared to $381.8 million for same period in 2022. The $18.9 million

increase in net interest income was primarily due to:

●

A $75.7 million increase in interest income on loans including:

A $50.1 million increase in

interest income on commercial and

construction loans, of which approximately

$49.5 million

was related

the effect

of higher

market

interest

rates

in the

upward repricing

of variable-rate

loans

and

in new

loan

originations,

and

approximately

$5.4

million

was

the

$220.6

million

increase

the

average

balance

this

portfolio (excluding

SBA PPP

loans). These

variances were

partially offset

by a

reduction in

interest income

from SBA

PPP

loans.

The

interest

income

recognized

from

SBA

PPP

loans

for

the

six-month

periods

ended

June

30,

2023

and

2022, amounted to $0.3 million and $5.1 million, respectively.

As of June 30, 2023, the

interest rate on approximately 54% of

the Corporation’s

commercial and construction loans was

tied to variable

rates, with 29%

based upon LIBOR

or SOFR of

3 months or

less, 13% based

upon the Prime

rate index,

and

12%

based

other

indexes.

For

the

six-month

period

ended

June

30,

2023,

the

average

one-month

LIBOR

increased 424

basis points,

the average

three-month LIBOR

increased 414

basis points,

the average

three-month SOFR

increased 413 basis points,

and the average Prime

rate increased 431 basis points,

compared to the average

rates for such

indexes during the same period of the prior year.

A $26.8 million increase in interest

income on consumer loans and finance

leases, primarily driven by the $426.5

million

increase

in the

average

balance of

this portfolio,

which

increased interest

income

by approximately

$20.6

million,

and

the approximately

$6.1 million

increase in

interest income

associated with

the positive

effects of

higher market

interest

rates on new consumer loan originations and the repricing of the credit cards portfolio

Partially offset by:

$1.2

million

decrease

interest

income

residential

mortgage

loans,

primarily

the

$104.5

million

reduction in

the average

balance of

this portfolio,

which resulted

in an

approximate

decrease of

$2.7 million

in interest

income,

partially

offset

the

positive

effect

new

loan

originations

higher

current

market

interest

rates,

which

resulted in an approximate increase of $1.6 million in the first six months of

2023.

●

A $8.8

million

increase

in interest

income

from

interest-bearing

cash balances,

which

consisted primarily

cash balances

deposited at

the FED,

mainly due

to the

effect of

higher market

interest rates,

partially offset

by the

impact of

a $1.2

billion

decrease in the average balance of interest-bearing cash.

●

$3.6 million increase in interest income on investment securities, mainly driven

by:

$2.7

million

increase

interest

income

Puerto

Rico

municipal

bonds,

mainly

due

the

upward

repricing

variable-rate bonds, partially offset by the impact of

a $12.3 million reduction in the average balance.

A $1.5

million

increase

interest income

U.S. government

and

agencies

debt

securities, mainly

driven

higher-

yielding securities purchased late in the second quarter of 2022.

A $0.8

million increase

in dividend

income from

FHLB stock,

mainly driven

by a

higher average

balance tied

with the

increase in FHLB advances taken as a precautionary measure in the

first quarter of 2023.

Partially offset by:

A $1.4

million decrease

in interest

income on

U.S. agencies

MBS, of

which $2.4

million was

associated with

a $251.4

million

decrease

the

average

balance

this

portfolio,

partially

offset

$1.0

million

increase

associated

with

lower

level

of premium

amortization

expense

due

to changes

anticipated

prepayments

and

the positive

effects

from

higher-yielding U.S. agencies MBS purchased in the second quarter of

2022.

Partially offset by:

●

A $56.1 million increase in interest expense on interest-bearing deposits, including:

A $33.5

million increase

in interest

expense on

interest-bearing checking

and saving

accounts, driven

by an

increase of

approximately

$35.7 million

associated with

higher interest

rates paid

in the

first half

of 2023

as a

result of

the overall

higher interest

rate environment,

partially offset

by a decrease

of approximately

$2.2 million

resulting from

a decline of

approximately $888.5 million in the average balance of these deposits.

An $18.1

million increase

in interest

expense on

time deposits,

excluding brokered

CDs, mainly

associated with

higher

rates

paid

the

first

half

2023

new

issuances

and

renewals

also

associated

with

the

higher

interest

rate

environment.

The average

cost of

time deposits

in the

first

half of

2023,

excluding

brokered CDs,

increased

147

basis

points to 2.20% when compared to the same period in 2022.

A $4.5

million increase

in interest

expense on

brokered CDs,

of which

$2.9 million

was associated

with the

increase of

$166.4 million in the average balance and $1.6 million was associated to the overall

higher interest rate environment.

●

A $13.1 million net increase in interest expense on borrowings, including:

An $11.1

million increase in interest

expense on advances from

the FHLB, of which $7.0

million was associated with

increase

$381.4

million

the

average

balance

increase

available

cash

precautionary

measure

the

first

quarter of 2023, and $4.1 million was associated with new FHLB advances

at higher interest rates.

$3.8

million

increase

interest

expense

other

long-term

borrowings,

driven

the

upward

repricing

junior

subordinated debentures tied to the increase in the three-month LIBOR index.

Partially offset by:

$1.8

million

decrease

interest

expense

repurchase

agreements,

mainly

driven

reduction

the

average

balance of $124.2 million,

which resulted in an approximate

reduction of $2.7 million in

interest expense, partially offset

by a $0.9

million increase in

interest expense associated

with new short

-term repurchase agreements

entered into during

2023 at higher interest rates.

Net interest

margin for

the second

quarter of

2023 increased

to 4.23%,

compared to

4.00% for

the same

period in

2022, and

by 38

basis

points

4.29%

for

the

first

six

months

2023,

compared

3.91%

for

the

same

period

2022.

The

net

interest

margin

increase

primarily

reflects

the

upward

repricing

variable-rate

commercial

loans,

the

growth

higher

yielding

loans,

primarily

consumer loans, and the change in asset mix, reflecting a higher

proportion of higher-yielding assets in the 2023

periods. These factors

were partially offset by an increase in the average cost of interest-bearing

liabilities.

Provision for Credit Losses

The provision

for credit

losses consists of

provisions for

credit losses on

loans and

finance leases,

unfunded loan

commitments, as

well as the debt securities portfolio. The principal changes in the provision for

credit losses by main categories follow:

Provision for credit losses for

loans and finance leases

The provision

for credit

losses for

loans and

finance leases

was $20.8

million for

the second

quarter of

2023, compared

to $12.7

million for the second quarter of 2022. The variances by major portfolio

category were as follows:

●

Provision

for

credit

losses

for

the

commercial

and

construction

loan

portfolio

was

$10.2

million

for

the

second

quarter

2023,

compared to

$0.3 million

for the

second quarter

of 2022.

The expense

recognized during

the second

quarter of

2023

was mainly due to a deterioration in the forecasted CRE price index and the

increase in size of this portfolio.

●

Provision

for

credit

losses for

the

consumer

loans

and finance

leases portfolio

was

$14.1

million

for

the second

quarter

2023,

compared

$15.2

million

for

the

second

quarter

2022.

The

decrease

was

primarily

updates

macroeconomic variables, such as the unemployment rate.

●

Provision for

credit losses for

the residential

mortgage loan portfolio

was a net

benefit of $3.5

million for the

second quarter

2023,

compared

a net

benefit

$2.8

million

for

the second

quarter

of 2022.

The higher

net

benefit

recorded

for the

second quarter of 2023

was primarily related to updates in the projection

of certain forecasted macroeconomic variables, such

as the Regional Home Price Index.

The provision for credit losses

for loans and finance leases was an

expense of $37.0 million for

the first half of 2023, compared to

net benefit of $4.3 million for the same period in 2022. The variances by major

portfolio category were as follows:

●

Provision

for credit

losses for

the commercial

and

construction loan

portfolio

was an

expense of

$10.7

million for

the first

half of 2023, compared

to a net benefit

of $22.8 million for

the same period of

2022. The expense

recognized during the first

half

2023

was mainly

due

deterioration

in the

forecasted

CRE price

index,

$6.2

million

charge

associated

with

nonaccrual commercial

and industrial participated

loan in the Florida

region in the

power generation industry

and, to a

lesser

extent, portfolio growth.

Meanwhile, the net benefit recorded during the

first six months of 2022 mainly reflects reductions

qualitative

reserves

associated

with

reduced

COVID-19

uncertainties,

partially

offset

reserve

builds

uncertainties regarding the macroeconomic outlook.

●

Provision

for

credit losses

for

the

residential

mortgage

loan portfolio

was a

net

benefit

of $3.4

million

for

the

first half

2023,

compared to

a net

benefit of

$7.7 million

for the

same period

of 2022.

The net

benefit recorded

for both

periods was

primarily related to

a continued favorable

economic outlook in

the projection of

certain forecasted macroeconomic

variables,

such as the Regional Home Price Index.

●

Provision

for

credit losses

for

the consumer

loans and

finance leases

portfolio

was $29.7

million

for

the first

half of

2023,

compared

$26.2

million

for

the

same

period

2022.

The

increase

primarily

reflects

the

increase

the

size

the

consumer

loan

portfolios

and

the

increase

historical

charge-off

levels

all

major

portfolio

classes,

partially

offset

updates in macroeconomic variables, such as the unemployment rate.

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 $0.7

million

and

$0.6

million

for

the second

quarter

and

the

first half

2023,

respectively,

compared

to $0.8

million

and

$0.7

million,

respectively, for the

same periods in 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

$0.8 million and $0.1 million

for the second quarter and first

half of 2023, respectively,

compared to a net benefit

of $3.4 million and an

expense of $0.3 million,

respectively, for

the same periods

2022.

The

increase

the

provision

recorded

during

the

second

quarter

and

the

first

half

2023

was

mostly

driven

higher

exposure risk associated with the rising interest rate environment.

The

provision

for

credit

losses

for

available-for-sale

debt

securities

was

net

benefit

$16

thousand

and

$25

thousand

for

the

second quarter

and first

half of

2023, respectively,

compared to

a net

benefit of

$35 thousand

and $0.4

million, respectively,

for the

same periods in 2022.

Non-Interest Income

Non-interest

income amounted

to $36.3

million for

the second

quarter of

2023, compared

to $30.9

million for

the same

period in

2022.

Non-interest income

for the second

quarter of

2023 includes the

$3.6 million

gain recognized

from a legal

settlement,

included

as part

of other

non-interest income

and the

$1.6 million

gain on

the repurchase

of $21.4

million in

junior subordinated

debentures,

included as part of gain on early extinguishment of debt.

See “Non-GAAP Financial Measures and Reconciliations” in this MD&A for

further information. On a non-GAAP basis, excluding the effect

of these Special Items, adjusted non-interest income increased by

$0.2

million primarily due to:

●

A $1.0

million

net increase

in adjusted

other non

-interest income

including:

(i) a

$0.8 million

benefit

recognized

during

the second

quarter of

2023

in relation

to purchased

income tax

credits realized;

(ii) $0.3

million

in debit

card incentives

collected during

the second

quarter of

2023; (iii)

a $0.3

million increase

related to

higher unused

loan commitment

fees;

and (v) a $0.6 million decrease in net gains on fixed assets.

●

A $0.8

million

increase

in card

and

processing

income

mainly

to higher

interchange

income

received

during

the

second quarter of 2023.

Partially offset by:

●

A $1.2 million decrease

in revenues from mortgage

banking activities, mainly driven

by a decrease in

the net realized gain

on sales

of residential

mortgage loans

in the

secondary market

due to

a lower

volume of

sales and

lower margins.

During

the second quarters of

2023 and 2022, net realized

gains of $0.9 million

and $2.2 million, respectively,

were recognized as

result

GNMA

securitization

transactions

and

whole

loan

sales to

U.S.

GSEs

amounting

$51.8

million

and

$64.2

million, respectively.

●

A $0.2 million decrease in insurance commission income.

●

A$0.2 million decrease in service in charges and fees on deposits accounts

Non-interest

income for

the six-month

period ended

June 30,

2023 amounted

to $68.8

million, compared

to $63.8

million for

the

same period

in 2022.

On a

non-GAAP basis,

excluding the

effect of

the aforementioned

Special Items,

adjusted non-interest

income

decreased by $0.2 million primarily due to:

●

A $3.6 million decrease

in revenues from mortgage

banking activities, mainly driven

by a decrease in

the net realized gain

on sales

of residential

mortgage loans

in the

secondary market

due to

a lower

volume of

sales and

lower margins.

During

the first six months

of 2023 and

2022, net gains

of $2.0 million

and $5.7 million,

respectively,

were recognized as

a result

of GNMA

securitization transactions

and whole

loan sales

to U.S.

GSEs amounting

to $89.2

million and

$158.1 million,

respectively.

●

$0.6

million

decrease

insurance

commission

income,

mainly

due

lower

contingent

commissions

recognized

2023.

Partially offset by:

●

$2.1

million

increase

card

and

processing

income

mainly

higher

interchange

income

during

the

first

six

months of 2023.

●

A $1.9

million

net

increase

adjusted

other

non-interest

income

including:

(i)

a $1.0

million

increase

to higher

benefit recognized in relation to

purchased income tax credits realized

;

(ii) a $0.6

million increase related to higher

unused

loan commitment

fees; (iii)

$0.3 million

in debit

card incentives

collected during

the second

quarter of

2023; (iv)

a $0.3

million

increase

unrealized

gains

marketable

equity

securities;

and

(v)

$0.2

million

increase

fees

and

commissions from insurance referrals;

partially offset by a $0.7 million decrease in net gains on fixed

assets.

Non-Interest Expenses

Non-interest

expenses for

the quarter

ended June

30, 2023

amounted

to $112.9

million, compared

to $108.3

million for

the same

period in

2022. The

efficiency ratio

for the

second quarter of

2023 was

47.83%, compared

to 47.69% for

the second

quarter of

2022.

On a

non-GAAP basis,

excluding the

aforementioned Special

Items,

the adjusted

efficiency ratio

for the

second quarter

of 2023

was

48.91%. The $4.6 million increase in non-interest expenses was primarily due

to:

●

$3.0

million

increase

employees’

compensation

and

benefits

expenses,

mainly

driven

annual

salary

merit

increases,

higher stock-based compensation expense, and higher medical insurance

premium costs.

●

$1.0

million

increase

other

non-interest

expenses,

part

due

increase

charges

for

legal

and

operational

reserves and an increase of $0.5 million in net periodic cost of pension plans.

●

$0.7 million increase in credit and debit card processing fees, mainly

due to higher credit card assessment fees.

●

$0.6 million

increase in

the FDIC deposit

insurance expense,

driven by

the two basis

points increase

on the initial

base

deposit insurance assessment rate that came into effect during the

first quarter of 2023.

●

A $0.4 million increase in taxes, other than income taxes, primarily related

to higher license fees.

Partially offset by:

●

$0.5 million

increase in

net gains

on OREO

operations,

mainly driven

by an

increase in

net realized

gains on

sales of

OREO properties, primarily residential properties in the Puerto Rico region

●

$0.4

million

decrease

occupancy

and

equipment

expenses,

primarily

reflecting

reductions

depreciation

charges,

energy costs, and maintenance charges.

●

A $0.4 million decrease in professional service fees, mainly due

to a decrease in outsourced technology service fees.

Non-interest expenses for

the first six months

of 2023 amounted

to $228.2 million, compared

to $215.0 million for

the same period

in 2022.

The efficiency ratio

for the first

six months of

2023 was 48.60%,

compared to 48.25%

for the first

six months of

2022. On a

non-GAAP

basis,

excluding

the

aforementioned

Special

Items,

the

adjusted

efficiency

ratio

for

the

first

six

months

2023

was

49.15%. The $13.2 million increase in non-interest expenses was primarily

due to:

●

$9.9 million increase in employees’

compensation and benefits expenses, mainly driven

by annual salary merit increases

and

increase

bonuses,

medical

insurance

premium

costs,

stock-based

compensation

expense,

and

payroll

taxes,

partially offset by higher deferral of loan origination costs.

●

$1.9 million increase in credit and debit card processing expenses.

●

$1.5

million

increase

other

non-interest

expenses,

part

due

increase

charges

for

legal

and

operational

reserves and an increase of $0.9 million in net periodic cost of pension plans

●

$1.2 million

increase in

the FDIC deposit

insurance expense,

driven by

the two basis

points increase

on the initial

base

deposit insurance assessment rate that came into effect during the

first quarter of 2023.

●

$0.9 million increase in professional service fees, driven by an increase

in outsourced technology service fees.

●

$0.6 million increase

in business promotion

expenses, mainly resulting

from higher advertising

and marketing expenses

associated with the commemoration of the 75th anniversary of the

Bank.

●

A $0.5 million

increase in taxes,

other than income

taxes, primarily

related to higher

license fees, sales

and use taxes,

and

property taxes.

Partially offset by:

●

$1.8 million

increase in

net gains

on OREO

operations,

mainly driven

by an

increase in

net realized

gains on

sales of

OREO properties,

primarily residential properties in the Puerto Rico region.

●

$1.6

million

decrease

occupancy

and

equipment

expenses,

primarily

reflecting

reductions

depreciation

charges,

rental expenses, and energy costs.

Income Taxes

For the second quarter of 2023, the Corporation recorded an income

tax expense of $30.3 million, compared to $34.1 million for the

same period in

2022. For the

first six months of

2023, the Corporation

recorded an income

tax expense of

$62.2 million, compared

$77.1

million

for

the

same

period

2022.

The

decrease

income

tax

expense

for

the

quarter

and

first

six

months

2023,

compared

to the

same periods

a year

ago, was

mainly related

to lower

pre-tax income

and a

higher proportion

of exempt

to taxable

income resulting in a lower effective tax rate.

The Corporation’s

estimated annual

effective

tax rate

in the

first six

months of

2023,

excluding entities

from

which a

tax benefit

cannot be recognized and discrete items, was 30.1%, compared

to 31.7% for the first six months of 2022. See Note 17 - Income

Taxes,

to the unaudited consolidated financial statements herein

for additional information.

As of

June

30,

2023,

the

Corporation

had

deferred

tax

asset of

$153.9

million,

net

of a

valuation

allowance

$184.2

million

against the deferred tax

asset, compared to a

deferred tax asset of $155.6

million, net of a valuation

allowance of $185.5 million,

as of

December

31,

2022.

Income

tax

paid

for

the

six-month

period

ended

June

30,

2023

amounted

$82.2

million

compared

$15.3

million for

the same

period in

2022. The

increase is related

to the

full utilization

during 2022

of certain

deferred tax

assets related

NOLs that were available for regular income tax which decreased the amount due

for income taxes.

FINANCIAL CONDITION AND OPERATING

ANALYSIS

Assets

The Corporation’s

total assets

were $19.2

billion as of

June 30, 2023,

an increase of

$518.0 million

from December

31, 2022. The

increase was primarily related to a $567.0 million

increase in cash and cash equivalents,

primarily interest-bearing deposits maintained

the

FED

aligned

with

the

overall

increase

government

and

time

deposits.

addition,

further

discussed

below,

total

loans

increased by $168.5 million. These variances were partially offset

by a $186.3 million decrease in total investment securities.

Loans Receivable, including Loans Held for Sale

As of June 30, 2023,

the Corporation’s

total loan portfolio before

the ACL amounted to $11.7

billion, an increase of

$168.5 million

compared to

December 31, 2022.

In terms of

geography,

the growth consisted

of increases of

$220.7 million and

$37.9 million in

the

Puerto Rico

and Virgin

Islands regions,

respectively,

partially offset

by a $90.1

million decrease

in the

Florida region. On

a portfolio

basis, the

growth consi

sted of

increases of

$167.8 million

in consumer

loans, including

a $141.9

million increase

in auto

loans and

leases,

and

$52.2

million

in commercial

and

construction

loans,

partially

offset

a $51.5

million

decrease

in residential

mortgage

loans.

As of

June 30,

2023, the

loans in

the Corpo

ration’s

held-for-investment

portfolio was

comprised

of commercial

and construction

loans

(46%),

residential

real

estate

loans

(24%),

and

consumer

and

finance

leases

(30%).

the

total

gross

loan

portfolio

held

for

investment of $11.7 billion as of June 30,

2023, the Corporation had credit risk concentration of approximately 79% in

the Puerto Rico

region, 17% in the United States region (mainly in

the state of Florida), and 4% in the Virgin

Islands region, as shown in the following

table:

As of June 30, 2023

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,179,539

172,771

441,480

2,793,790

Construction loans

65,427

3,792

94,779

163,998

Commercial mortgage loans

1,734,514

65,775

519,780

2,320,069

Commercial and Industrial loans

1,902,803

108,971

934,427

2,946,201

Total commercial loans

3,702,744

178,538

1,548,986

5,430,268

Consumer loans and finance leases

3,421,376

66,078

7,803

3,495,257

Total loans held for investment,

gross

9,303,659

417,387

1,998,269

11,719,315

Loans held for sale

14,094

201

14,295

Total loans, gross

9,317,753

417,588

1,998,269

11,733,610

As of December 31, 2022

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,237,983

179,917

429,390

2,847,290

Construction loans

30,529

4,243

98,181

132,953

Commercial mortgage loans

1,768,890

65,314

524,647

2,358,851

Commercial and Industrial loans

1,791,235

68,874

1,026,154

2,886,263

Total commercial loans

3,590,654

138,431

1,648,982

5,378,067

Consumer loans and finance leases

3,256,070

61,419

9,979

3,327,468

Total loans held for investment,

gross

9,084,707

379,767

2,088,351

11,552,825

Loans held for sale

12,306

Total loans, gross

9,097,013

379,767

2,088,351

11,565,131

Residential Real Estate Loans

As of

June 30,

2023, the

Corporation’s

total residential

mortgage loan

portfolio, including

loans held

for sale,

decreased by

$51.5

million, as compared

to the balance as

of December 31, 2022.

The decline in the

residential mortgage loan portfolio

reflects decreases

of $56.7 million in the Puerto Rico region and

$6.9 million in the Virgin

Islands region, partially offset by an increase of

$12.1 million

in the Florida region.

The decline 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

as of

June 30,

2023 consisted

of fixed-rate

loans that

traditionally

carry higher

yields than

residential mortgage

loans in

the

Florida region. In

the Florida region,

approximately 42% of

the residential mortgage

loan portfolio consisted

of hybrid adjustable-rate

mortgages. In

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

As of June

30, 2023, the

Corporation’s

commercial and construction

loan portfolio increased

by $52.2 million,

as compared to

the

balance as of December 31, 2022.

the

Puerto

Rico

region,

commercial

and

construction

loans

increased

$112.1

million,

compared

the

balance

December

31,

2022.

This

increase

was

driven

the

origination

several

loans,

including

five

commercial

relationships,

each

excess of $10

million, that increased

the portfolio amount

by $66.0 million

and a $60.3

million increase in

the outstanding balance

floor plan lines of credit.

the

Virgin

Islands

region,

commercial

and

construction

loans

increased

$40.1

million,

compared

the

balance

December 31, 2022. The increase was driven by the

utilization of $47.0 million of a new $100.0 million line

of credit facility extended

to a government public corporation.

In the Florida

region, commercial and

construction loans decreased

by $100.0 million,

as compared to

the balance as

of December

31, 2022. This decrease

reflected $90.4 million in

payoffs and paydowns of

five commercial and industrial

relationships in the Florida

region, each

in excess

of $10

million, including

the aforementioned

payoff of

a $24.3

million commercial

and industrial

participated

loan in the leisure and hospitality industry.

June

30,

2023,

the

Corporation

had

$174.9

million

outstanding

loans

extended

the

Puerto

Rico

government,

its

municipalities,

and

public

corporations,

compared

$169.8

million

December

31,

2022.

See

“Exposure

Puerto

Rico

Government” below for additional information.

The Corporation

also has credit

exposure to USVI

government entities.

As of June

30, 2023, the

Corporation had $78.9

million in

loans to

USVI government

public corporations,

compared to

$38.0 million

as of

December 31,

2022. The

increase in

loans to

USVI

government

public

corporations

was

driven

the

aforementioned

$47.0

million

line

credit

utilization.

See

“Exposure

USVI

Government” below for additional information.

June

30,

2023,

the

Corporation’s

total

commercial

mortgage

loan

exposure

amounted

$2.3

billion,

43%

the

total

commercial

loan

portfolio.

The commercial

mortgage

loan

portfolio

includes

exposure

office

real

estate amount

ing

$428.3

million ($384.3 million

and $44.0 million

in the Puerto Rico

and Florida regions,

respectively), of which

approximately $76.1 million

matures during the remainder of 2023 and 2024.

June

30,

2023,

the

Corporation’s

total

exposure

shared

national

credit

(“SNC”)

loans

(including

unused

commitments)

amounted to

$1.1 billion

as of each

of June

30, 2023

and December

31, 2022.

As of

June 30,

2023, approximately

$206.2 million

the

SNC

exposure

the

portfolio

the

Puerto

Rico

region

and

$847.4

million

the

portfolio

the

Florida

region.

Consumer Loans and Finance Leases

As of

June 30,

2023,

the Corporation’s

consumer

loan

and finance

lease portfolio

increased by

$167.8

million

to $3.5

billion,

compared

the

portfolio

balance

$3.3

billion

December

31,

2022.

This

increase

was

mainly

increases

$72.5

million

and

$69.4

million

the

finance

leases

and

auto

loans

portfolios,

respectively.

The

growth

consumer

loans

was

mainly

reflected in the Puerto Rico region across all portfolio classes.

100

Loan Production

First

BanCorp.

relies

primarily

its

retail

network

branches

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

its

originations

come

from

existing

customers,

well

through

referrals

and

direct

solicitations.

Auto

loans

and

finance

leases

originations

rely

primarily on relationships with auto dealers and dedicated sales professionals who

serve selected locations to facilitate originations.

The

following

table

provides

breakdown

First

BanCorp.’s

loan

production,

including

purchases,

refinancings,

renewals

and

draws from existing revolving and non-revolving commitments, for

the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2023

2022

2023

2022

(In thousands)

Residential mortgage

115,251

126,532

192,553

249,045

Construction

47,006

46,880

82,505

66,866

Commercial mortgage

42,384

205,720

131,076

333,705

Commercial and Industrial

550,574

622,714

1,106,456

1,113,010

Consumer

454,005

482,252

889,323

908,719

Total loan production

1,209,220

1,484,098

2,401,913

2,671,345

During the quarter

and six-month period

ended June 30,

2023, total loan

originations, including

purchases, refinancings, and

draws

from

existing

revolving

and

non-revolving

commitments,

amounted

approximately

$1.2

billion

and

$2.4

billion,

respectively,

compared to $1.5 billion and $2.7 billion, respectively,

for the comparable periods in 2022.

Residential mortgage

loan originations

for the

quarter and

six-month period

ended June

30, 2023

amounted to

$115.3 million

and

$192.6

million, respectively

compared

to $126.5

million

and $249.0

million, respectively,

for the

comparable periods

in 2022.

The

decrease of

$11.2

million in

the second

quarter of

2023, as

compared to

the same

period in

2022, reflects

declines of

$9.1 million

the

Puerto

Rico

region,

$1.3

million

the

Virgin

Islands

region,

and

$0.8

million

the

Florida

region.

For

the

six-month

period

ended June 30, 2023, the decrease

of $56.4 million consisted of declines

of $51.4 million in the Puerto Rico

region, $3.3 million in the

Florida

region,

and

$1.7

million

the

Virgin

Islands

region.

Approximately

58%

the

$150.0

million

residential

mortgage

loan

originations in the

Puerto Rico region during

the first half of

2023 consisted of

conforming loans, compared

to 59% of $201.4

million

for the

first half

of 2022.

The decrease

during the

first half

of 2023

is related

to a

lower volume

of conforming

loan originations

and

refinancings, in part due to a higher interest rate environment.

Commercial and

construction loan

originations (excluding

government loans)

for the

quarter and

six-month period

ended June

30,

2023

amounted

$563.6

million

and

$1.2

billion,

respectively,

compared

$860.9

million

and

$1.5

billion,

respectively,

for

the

comparable periods

in 2022.

The decrease

of $297.3

million in

the second

quarter of

2023, as

compared to

the same

period in

2022,

reflects

declines

$158.2

million

the

Florida

region,

$124.8

million

the

Puerto

Rico

region,

and

$14.3

million

the

Virgin

Islands

region.

Commercial

loan

originations

for

the

second

quarter

2022

include

three

commercial

mortgage

loans

over

$10

million originated

in the Puerto Rico

region totaling $53.8

million and two

commercial mortgage loans

over $10 million

originated in

the Florida

region

totaling

$37.3 million.

For the

first six

months

of 2023,

the decrease

of $258.2

million

consisted

of decreases

$213.3 million in the Florida region, $31.1 million in the Puerto Rico region, and

$13.8 million in the Virgin

Islands region.

Government

loan

originations

for

the

quarter

and

six-month

period

ended

June

30,

2023

amounted

$76.3

million

and

$83.6

million, respectively,

compared to $14.4 million and $18.9 million, respectively,

for the comparable periods in 2022. Government loan

originations

during

the

first

half

2023

were

mainly

the

aforementioned

line

credit

utilization

the

Virgin

Islands

region,

loan

agency

the

Puerto

Rico

government

for

low-income

housing

project,

and

the

utilization

arranged

overdraft line of credit of a government entity

in the Virgin

Islands region. On the other hand, government loan

originations during the

first half

of 2022 were mainly

related to

the renewal

of a

municipal loan

in the

Puerto Rico

region and

the utilization

of the

arranged

overdraft line of credit of a government entity in the Virgin

Islands region.

101

Originations of auto

loans (including finance

leases) for the quarter

and six-month period

ended June 30,

2023 amounted to

$250.3

million and

$495.4 million,

respectively,

compared to

$269.5 million

and $530.8

million, respectively,

for the

comparable periods

2022. The

decrease in

the second

quarter of

2023, as

compared to

the same

quarter of

2022, consisted

of a

$21.2 million

decrease in

the Puerto

Rico region,

partially offset

by a $2.0

million increase in

the Virgin

Islands region.

The decrease

in the first

six months

2023, as

compared to

the same

period of

the previous

year, consisted

of a

$38.7 million

decrease in

the Puerto

Rico region,

partially

offset by a $3.3

million increase in the Virgin

Islands region. Other consumer

loan originations,

other than credit cards,

for the quarter

and six-month period ended June

30, 2023 amounted to $77.7 million

and $149.6 million, respectively,

compared to $87.2 million and

$142.8 million,

respectively,

for the

comparable periods

in 2022.

The utilization

activity on

the outstanding

credit card

portfolio

for

the

quarter

and

six-month

period

ended

June

30,

2023

amounted

$125.9

million

and

$244.3

million,

respectively,

compared

$125.6 million and $235.0 million, respectively,

for the comparable periods in 2022.

102

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

as of

June 30,

2023 amounted

to $5.4

billion, a

$166.2 million

decrease from

December 31, 2022

The decrease was

mainly driven

by repayments of

approximately $200.4

million of U.S.

agencies

MBS and

debentures,

partially

offset

by a

$32.4

million increase

in fair

value attributable

to changes

in market

interest rates.

As of

June 30, 2023, the

Corporation had a net

unrealized loss on available-for-sale

debt securities of $765.8

million. This unrealized loss

attributable to

instruments on book

carrying a lower

interest rate than

market rates. The

Corporation expects

that this unrealized

loss

will reverse over time and it is likely that it will not be required

to sell the securities before their anticipated recovery.

The Corporation

expects the portfolio will

continue to decrease and

the accumulated other comprehensive

loss will decrease accordingly,

excluding the

impact of market interest rates.

June

30,

2023,

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

June 30, 2023,

the Corporation held

a bond issued

by the

PRHFA,

classified as

available

for sale,

specifically a

residential pass-through

MBS in

the aggregate

amount of

$3.3 million

(fair

value

$2.1

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 $1.1 million

as of June 30,

2023,

of which

$0.3

million

is due

to credit

deterioration.

During

2021,

the Corporation

placed

this instrument

in nonaccrual

status

based on the delinquency status of the underlying second mortgage loans

collateral.

June

30,

2023,

the

Corporation’s

held-to-maturity

debt

securities

portfolio,

before

the

ACL,

decreased

$424.7

million,

compared

$437.5

million

December

31,

2022.

Held-to-maturity

debt

securities

consisted

fixed-rate

GSEs’

MBS

and

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form,

which

the

Corporation

accounts

for

as securities,

but

which were

underwritten

as loans

with features

that are

typically found

in commercial

loans. Puerto

Rico municipal

bonds typically

are

not

issued

bearer

form,

are

not

registered

with

the

SEC,

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. As of June 30, 2023, approximately

74% of the Corporation’s

municipal bonds consisted of obligations issued by four

of the

largest

municipalities

Puerto

Rico.

The

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required for the

payment of all of

their respective general

obligation bonds and

loans. Given the

uncertainties as to the

effects that the

fiscal position

of the

Puerto Rico

central government,

and the measures

taken, or

to be

taken, by other

government entities

may have

on municipalities,

and the

higher interest

rate environment,

the Corporation

cannot be

certain whether

future charges

to the

ACL on

these securities will be required.

As of June 30, 2023, the ACL

for held-to-maturity debt securities was

$8.4 million, compared to

$8.3

million as of December 31, 2022.

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

the

exposure to Puerto Rico municipal bonds.

103

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

June 30, 2023

December 31, 2022

(In thousands)

Money market investments

1,000

2,025

Available-for-sale

debt securities, at fair value:

U.S. government and agencies obligations

2,515,097

2,492,228

Puerto Rico government obligations

2,111

2,201

MBS:

Residential

2,759,697

2,941,458

Commercial

156,464

163,133

Other

500

Total available-for-sale

debt securities, at fair value

5,433,369

5,599,520

Held-to-maturity debt securities, at amortized cost:

MBS:

Residential

155,690

166,739

Commercial

102,912

105,088

Puerto Rico municipal bonds

166,124

165,710

ACL for held-to-maturity Puerto Rico municipal bonds

(8,401)

(8,286)

Total held-to-maturity

debt securities

416,325

429,251

Equity securities, including $34.7 million and $42.9 million of FHLB stock

as of June 30,

2023 and December 31, 2022, respectively

48,101

55,289

Total money market

investments and investment securities

5,898,795

6,086,085

The carrying values of debt securities as of June 30, 2023 by contractual maturity

(excluding MBS), are shown below:

Carrying Amount

Weighted-Average

Yield %

(Dollars in thousands)

U.S. government and agencies obligations:

Due within one year

246,038

0.44

Due after one year through five years

2,247,794

0.84

Due after five years through ten years

10,400

3.16

Due after ten years

10,865

5.38

2,515,097

0.83

Puerto Rico government and municipalities obligations:

Due within one year

1,205

5.90

Due after one year through five years

42,736

6.93

Due after five years through ten years

56,160

7.44

Due after ten years

68,134

8.14

168,235

7.59

MBS

3,174,763

1.70

ACL on held-to-maturity debt securities

(8,401)

Total debt securities

5,849,694

1.48

104

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

the

discount

would

accelerate.

These

risks

are

directly

linked

future

period

market

interest

rate

fluctuations.

Net

interest income in future periods might also be affected

by the Corporation’s investment

in callable securities. As of June 30, 2023, the

Corporation had

approximately $1.9

billion in

callable debt securities

(U.S. agencies

debt securities)

with an

average yield

of 0.78%,

of which

approximately 60%

were purchased

at a discount

and 3% 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,

refer to

Note 2 –

Debt Securities to

the unaudited

consolidated financial

statements herein

for additional

information

regarding the Corporation’s debt securities

portfolio.

RISK MANAGEMENT

General

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 risks and rewards 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,

well

Part

II,

Item

“Management’s

Discussion

and

Analysis of Financial Condition and Results of Operations,” in the 2022 Annual

Report on Form 10-K.

Liquidity Risk

Liquidity

risk

involves

the

ongoing

ability

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

meet

liquidity

needs

and

accommodate

fluctuations

asset

and

liability

levels

due

changes

the

Corporation’s

business

operations

unanticipated

events.

The Corporation

manages liquidity

at two

levels. The

first is

the liquidity

of the

parent company,

or First

Bancorp., which

is the

holding

company

that

owns

the

banking

and

non-banking

subsidiaries.

The

second

the

liquidity

the

banking

subsidiary,

FirstBank.

The Asset

and Liability

Committee of

the Board

is responsible

for overseeing

management’s

establishment of

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’s

Asset

and

Liability

Committee,

uses

measures

liquidity

developed

management

that

involve

the

use

several

assumptions

review

the

Corporation’s

liquidity

position

monthly

basis.

The

MIALCO

oversees

liquidity

management,

interest

rate

risk,

market

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

Corporate

Strategic

and

Business

Development

Director,

the

Business

Group

Director,

the

Treasury

and

Investments Risk

Manager,

the Financial

Planning and

Asset and

Liability Management

(“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 on a weekly

basis. The Treasury

and Investments

Accounting and

Operations area

of the

Corporate Controller’s

Department is

responsible for

calculating the

liquidity measurements

used

the

Treasury

and

Investment

Division

review

the

Corporation’s

liquidity

position

weekly

basis.

The

Financial

Planning and ALM Division is responsible for estimating the liquidity

gap for longer periods.

105

ensure

adequate liquidity

through the

full range

of 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

this

operating

strategy

include

strong

focus

the

continued

development

customer-based

funding, the

maintenance

of direct

relationships with

wholesale

market funding

providers, and

the maintenance

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 to normal

sources of funds

is constrained. The

plans project funding

requirements during

a potential period

stress, specify and quantify sources of liquidity,

outline actions and procedures for effectively managing liquidity

through a period of

stress, 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 to honor

their respective commitments.

The Corporation has

established liquidity

triggers that the

MIALCO monitors in

order

to maintain the

ordinary funding of

the banking business.

The MIALCO has

developed contingency funding

plans for the

following

three

scenarios:

credit rating

downgrade,

economic

cycle downturn

event,

and

concentration

event.

The

Board’s

Asset and

Liability Committee reviews and approves these plans on an annual basis.

The

Corporation

manages

its

liquidity

proactive

manner

and

effort

maintain

sound

liquidity

position.

uses

multiple measures

to monitor

its liquidity

position, including

core liquidity,

basic liquidity,

and time-based

reserve measures.

Cash

and cash equivalents

amounted to $1.0 billion

as of June 30, 2023,

compared to $480.5 million

as of December 31,

2022. Free high-

quality liquid

securities that

could be

liquidated or

pledged within

one day

amounted to

$2.2 billion

as of

June 30,

2023, compared

to $3.1 billion as of December 31, 2022.

As of June 30, 2023, 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

or pledged

within one

day)

was $3.2

billion, or

16.70% of

total assets,

compared to

$3.5 billion,

or 19.02%

of total

assets as

of December

31, 2022.

The basic

liquidity

ratio

(which

adds

available

secured

lines

credit

the

core

liquidity)

was

approximately

21.82%

total

assets

June

30,

2023,

compared to 22.48% of total assets as of December 31, 2022.

As of June 30, 2023, in

addition to the aforementioned $3.2

billion in cash and free high

quality liquid assets, the Corporation

had

$980.9

million

available

for credit

with the

FHLB based

the value

of loan

collateral pledged

with the

FHLB. The

Corporation

also maintains

borrowing

capacity at

the FED

Discount

Window.

The Corporation

does not

consider borrowing

capacity from

the

FED Discount

Window

as a

primary

source of

liquidity but

had approximately

$1.4 billion

available for

funding under

the FED’s

Borrower-in-Custody (“BIC”) Program as of June 30, 2023

as an additional contingent source of liquidity.

Total loans pledged

to the

FED Discount Window

amounted to $2.4 billion as of

June 30, 2023. 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.

On a

combined

basis,

June

30,

2023,

the

Corporation

had

$5.6

billion

total

available

liquidity,

1.17x

uninsured

deposits

excluding

government deposits, to meet liquidity needs,

while maintaining a strong capital position.

Liquidity

the Bank

level

is highly

dependent

bank deposits,

which

fund

88.2%

of the

Bank’s

assets (or

86.3%

excluding

brokered CDs).

In addition,

as further

discussed below,

the Corporation

maintains a

diversified base

of readily

available wholesale

funding

sources,

including

advances

from

the

FHLB

through

pledged

borrowing

capacity,

securities

sold

under

agreements

repurchase,

and

access

CDs

through

brokers.

Funding

through

wholesale

funding

may

continue

increase

the

overall

cost

funding for the Corporation and impact the net interest margin.

provider

financial

services,

the

Corporation

routinely

enters

into

commitments

with

off-balance

sheet

risk

meet

the

financial

needs

its

customers.

These

financial

instruments

may

include

loan

commitments

and

standby

letters

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 June 30, 2023,

the Corporation’s commitments to

extend credit amounted to approximately $2.0

billion.

Commitments to

extend credit

are agreements

to lend

to a

customer as

long as

there is

no violation

of any

condition established

the contract.

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.

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.

106

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

credit as of the indicated dates:

June 30,

2023

December 31, 2022

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

189,458

170,639

Unused credit card lines

955,292

936,231

Unused personal lines of credit

40,346

41,988

Commercial lines of credit

795,820

761,634

Letters of credit:

Commercial letters of credit

57,732

68,647

Standby letters of credit

8,267

9,160

The

Corporation

engages

the ordinary

course

of business

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

and, thus,

affect

the Corporation’s

liquidity position.

These transactions

are designed

to (i)

meet the

financial needs

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

to make

future payments

under contracts,

amounting to

approximately $3.9

billion as

of June

30,

2023.

Our

material

cash

requirements

comprise

primarily

contractual

obligations

make

future

payments

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

to our

liquidity needs.

currently anticipate

that our

available funds,

credit

facilities, and cash flows from operations will be sufficient

to 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

funding are deposits,

including brokered CDs.

Additional funding is

provided by short-

and long-term 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

also

sells mortgage

loans

as a

supplementary source of

funding and has obtained

long-term funding in the past

through the issuance of

notes and long-term brokered

CDs. In

addition, the

Corporation also

maintains as

additional contingent

sources borrowing

capacity at

the FED’s

BIC Program

and

is enrolled in the FED’s Bank Term

Funding Program (“BTFP”).

While

liquidity

ongoing

challenge

for

all

financial

institutions,

management

believes

that

the

Corporation’s

available

borrowing capacity and

efforts to grow

core deposits will be

adequate to provide

the necessary funding

for the Corporation’s

business

plans in the foreseeable future.

107

The Corporation’s principal

sources of funding are discussed below:

Retail

core

deposits

–

The

Corporation’s

deposit

products

include

regular

savings

accounts,

demand

deposit

accounts,

money

market

accounts,

and

retail

CDs.

June

30,

2023,

the

Corporation’s

core

deposits,

which

exclude

government

deposits

and

brokered CDs, decreased by $247.0

million to $13.0 billion from $13.3 billion

as of December 31, 2022. The decrease was

primarily

to saving

and

checking

accounts

primarily

in the

Puerto

Rico and

Florida

regions. Notwithstanding,

these

reductions

were

partially offset

by an

increase in

time deposits,

including a

shift from

non-interest bearing

or low-interest

bearing products

to time

deposits,

driven

higher

rates

offered.

Over

the

last

year,

the

FED’s

policies

control

the

inflationary

economic

environment,

including

repeated

market

interest

rate

increases,

have

resulted

excess

liquidity

gradually

tapering

off

and

impacting

the

Corporation’s

core

deposit

balances

customers

continued

reallocate

cash

into

higher

yielding

alternatives.

Further

shift

may

continue

increase

the

overall

cost

funding

for

the

Corporation

and

impact

the net

interest

margin.

For

the

second

quarter

2023, the average balance per retail core deposit account was $26 thousand.

Government

deposits

–

As of

June 30,

2023,

the

Corporation had

$2.9

billion

of Puerto

Rico

public

sector deposits

($2.8

billion

transactional

accounts

and

$140.1

million

time

deposits),

compared

$2.3

billion

December

31,

2022.

The

increase

was

higher

balances

interest-bearing

transactional

accounts.

Government

deposits

are

insured

the

FDIC

the

applicable

limits and

the

uninsured

portions

is fully

collateralized.

Approximately

21%

the

public

sector

deposits

as of

June

30,

2023 were from municipalities and

municipal agencies in Puerto Rico

and 79% were from public corporations,

the central government

and agencies, and U.S. federal government agencies in Puerto Rico.

In addition, as of June 30, 2023, the Corporation

had $524.5 million of government deposits in the Virgin

Islands region (December

31, 2022 - $442.8 million) and $12.1 million in the Florida region (December

31, 2022 - $11.6 million).

The uninsured

portions

of government

deposits were

collateralized

by securities

and

loans with

an amortized

cost of

$3.7

billion

and

$3.1

billion

June

30,

2023

and

December

31,

2022,

respectively,

and

estimated

market

value

$3.3

billion

and

$2.7

billion,

respectively.

addition

securities

and

loans,

as of

June

30,

2023

and

December

31,

2022,

the

Corporation

used

$225.0

million and $200.0 million, respectively,

in letters of credit issued by the FHLB as pledges for public deposits in the Virgin

Islands.

Estimate of Uninsured

Deposits –

As of June

30, 2023 and December

31, 2022, the

estimated amount of

uninsured deposits totaled

$8.0

billion

and

$7.6

billion,

respectively,

generally

representing

the

portion

deposits

that

exceed

the

FDIC

insurance

limit

$250,000

and amounts

in any

other uninsured

deposit account.

The balances

presented as

of June

30, 2023

and December

31, 2022

include

the

uninsured

portion

fully

collateralized

government

deposits

which

amounted

$3.3

billion

and

$2.6

billion,

respectively.

Excluding

fully

collateralized

deposits,

$4.7

billion

these

deposits

are

uninsured,

which

represent

28.79%

total

deposits,

excluding brokered CDs, as of June 30, 2023, compared

to $4.9 billion, or 30.65% of total deposits,

excluding brokered CDs,

December

31,

2022.

The

increase

mostly

government

deposits,

which

are

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 June 30, 2023:

(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

254,158

108,835

225,068

357,972

946,033

Other uninsured time deposits

16,675

10,763

10,277

6,546

44,261

Brokered CDs

– Total brokered

CDs increased by $257.8 million to $363.6 million as of June

30, 2023, compared to $105.8 million as

December

31,

2022.

The increase

reflects

the

effect

of new

issuances

amounting

to $475.6

million

with

an all-in

cost

4.97%,

partially offset by

approximately $217.8 million

of maturing brokered

CDs, with an all-in

cost of 4.92%, that

were paid off during

the

first six months of 2023.

The average remaining term to maturity of the brokered CDs outstanding

as of June 30, 2023 was approximately 1 year.

The increased

use of

brokered CDs

was primar

ily related

to short-term

funding in

our Florida

region, The

future use

of brokered

CDs

will

depend

multiple

factors

including

excess

liquidity

each

the

regions,

future

cash

needs

and

any

tax

implications.

Brokered CDs are insured by the FDIC up to regulatory limits and can be obtained

faster than regular retail deposits.

108

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 six-month periods ended

June 30, 2023 and 2022.

Securities

sold

under

agreements

repurchase

The

Corporation’s

investment

portfolio

funded

part

with

repurchase

agreements.

The Corporation’s

outstanding

short-term

securities sold

under repurchase

agreements

amounted

to $73.9

million

as of

June 30,

2023, compared

to $75.1

million as

of December

31, 2022.

In addition

to these

repurchase agreements,

the Corporation

has

been

able to

maintain

access to

credit by

using

cost-effective

sources such

as FHLB

advances.

See

Note 9

– Securities

Sold

Under

Agreements

Repurchase

(Repurchase

Agreements)

the

unaudited

consolidated

financial

statements

herein

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

member

the

FHLB

system

and

obtains

advances

fund

its

operations

under

collateral

agreement

with

the

FHLB

that

requires

the

Bank

maintain

qualifying

mortgages

and/or

investments

collateral

for

advances taken.

As of

June 30,

2023, the

outstanding balance

of fixed-rate

FHLB advances

was $500.0

million, compared

to $675.0

million as

of December

31, 2022.

During the

six-month period

ended June

30, 2023,

the Corporation

added $300.0

million of

long-

term FHLB advances at an

average cost of 4.59%, and

repaid its short-term FHLB advances. Of

the $500.0 million in FHLB advances

as of June 30, 2023, $400.0 million were pledged

with investment securities and $100.0 million were pledged

with mortgage loans. As

June

30,

2023,

the

Corporation

had

$980.9

million

available

for

additional

credit

FHLB

lines

credit

based

collateral

pledged at the FHLB of New York.

Trust

Preferred

Securities –

In 2004,

FBP Statutory

Trusts I

and II,

statutory trusts

that are

wholly-owned by

the Corporation

and

not consolidated in

the Corporation’s

financial statements, sold

to institutional investors

variable-rate TRuPs and

used the proceeds of

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 long-term borrowings.

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

any

time

and

from

time

during

the

term

the

subordinated

debentures

for

twenty

consecutive

quarterly periods.

During the second quarter

of 2023, the Corporation completed

the repurchase of $21.4 million

of TRuPs of the FBP Statutory

Trust

I as

part of

a privately

-negotiated

transaction,

resulting

in a

commensurate

reduction

in the

floating

rate junior

subordinated

debentures. The purchase

price equated to 92.5%

of the $21.5 million

par value of the

TRuPs. The 7.5% discount

resulted in a gain

approximately $1.6 million, which

is reflected in the consolidated

statements of income as “Gain on

early extinguishment of debt.” As

of June 30,

2023 and December

31, 2022, the

Corporation had junior

subordinated debentures outstanding

in the aggregate amount

$161.7 million

and $183.8

million, respectively,

with maturity

dates ranging

from June

17, 2034

through September

20, 2034.

As of

June

30, 2023,

the Corporation

was current

all interest

payments

due

on its

subordinated

debt.

See

Note 11

–

Other Long-Term

Borrowings

and

Note

–

Non-Consolidated

Variable

Interest

Entities

(“VIEs”)

and

Servicing

Assets

unaudited

consolidated

financial statements herein for additional information.

Other Sources

of Funds and

Liquidity

- The Corporation’s

principal uses of

funds are for

the origination of

loans, the repayment

maturing deposits

and borrowings,

and deposits

withdrawals. 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

six months of 2023, loans

pooled into GNMA MBS amounted

approximately

$66.4

million.

Also,

during

the

first

six

months

2023,

the

Corporation

sold

approximately

$22.8

million

performing residential mortgage loans to FNMA.

The

FED

Discount

Window

cost-efficient

contingent

source

funding

for

the

Corporation

highly-volatile

market

conditions.

previously

mentioned,

although

currently

not

use,

June

30,

2023,

the

Corporation

had

approximately

$1.4

billion available for funding under the FED’s

Discount Window based on collateral pledged at the FED.

109

The FED’s

BTFP was

established

by the

Federal Reserve

Board in

March 2023

as an

additional source

of funding

for depository

institutions

borrow

the

par

value

eligible

collateral

for

terms

one

year.

The

BTFP

eliminates

the

need

for

depository

institutions

sell their

debt

securities

times

stress. Eligible

collateral

includes

high-quality

securities such

as U.S.

Treasuries, U.S.

agency securities, and

U.S. agency MBS.

Borrowers that are

eligible for primary

credit under the

BIC Program, such

as FirstBank,

are eligible

to borrow

under the

BTFP.

In addition,

any eligible

collateral pledged

to the

discount window

can be

used

under the

BTFP.

The rate

for term

advances will

be the one

-year overnight

index swap

rate plus

10 basis points

and will be

fixed for

the term

of the

advance on

the day

the advance

is made.

As previously

mentioned, the

Corporation enrolled

in the

BTFP during

the

first quarter

of 2023

to further

diversify its

contingency funding

sources and

has approximately

$2.2 million

available for

funding as

of June 30, 2023.

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

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First BanCorp. (FBP) 10-Q2023 Q2 Quarterly report

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